UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 29, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission file number 1-4415
Park Electrochemical Corp.
(Exact Name of Registrant as Specified in Its Charter)
New York 11-1734643 (State or Other Jurisdiction of (I.R.S. Employer Incorporation of Organization) Identification No.) |
5 Dakota Drive, Lake Success, New York 11042
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (516) 354-4100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
on Which Registered
Common Stock, par value $.10 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No _
[cover page 1 of 2 pages]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes X No___
State the aggregate market value of the voting and non-
voting common equity held by non-affiliates computed by reference
to the price at which the common equity was sold, or the average
bid and asked prices of such common equity, as of the last
business day of the registrant's most recently completed second
fiscal quarter.
As of Close of
Title of Class Aggregate Market Value Business On
Common Stock,
par value $.10 per share $457,489,328* August 29,2003
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Shares As of Close of
Title of Class Outstanding Business On
Common Stock,
par value $.10 per share 19,847,937 May 7, 2004
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DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders to be held July 14, 2004 incorporated by reference into Part III of this Report.
*Included in such amount are 1,487,286 shares of common stock valued at $23.15 per share and held as of such date by Jerry Shore, the Registrant's Chairman of the Board and a member of the Registrant's Board of Directors.
[cover page 2 of 2 pages]
TABLE OF CONTENTS
Page
PART I
Item 1. Business..................................... 3
Item 2. Properties................................... 14
Item 3. Legal Proceedings............................ 14
Item 4. Submission of Matters to a Vote of Security
Holders.................................... 15
Executive Officers of the Registrant......... 15
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters.................. 18
Item 6. Selected Financial Data...................... 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Factors That May Affect Future Results....... 35
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk............................ 37
Item 8. Financial Statements and Supplementary Data.. 37
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....... 64
Item 9A Controls and Procedures...................... 64
PART III
Item 10. Directors and Executive Officers of the
Registrant................................... 65
Item 11. Executive Compensation....................... 65
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder
Matters...................................... 65
Item 13. Certain Relationships and Related Transactions 66
Item 14. Principal Accountant Fees and Services....... 66
PART IV
Item 15 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.......................... 67
SIGNATURES.............................................. 68
FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying
Accounts................................ 69
EXHIBIT INDEX........................................... 70
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PART I
Item 1. Business.
General
Park Electrochemical Corp. ("Park"), through its subsidiaries (unless the context otherwise requires, Park and its subsidiaries are hereinafter called the "Company"), is primarily engaged in the design, production and marketing of advanced electronic materials used to fabricate complex multilayer printed circuit boards and other electronic interconnection systems. Park specializes in advanced materials for high layer count circuit boards and high-speed and radio frequency microwave electronic systems and digital broadband telecommunications, internet and networking applications. Park's electronic materials business operates under the "Nelco" name through fully integrated business units in Asia, Europe and North America. The Company's electronic materials manufacturing facilities are located in Singapore, China, France, New York, Arizona and California.
The Company is also engaged in the design, production and marketing of advanced composite materials through its FiberCote Industries subsidiary in Waterbury, Connecticut.
Park was founded in 1954 by Jerry Shore, the Company's Chairman of the Board and one of its largest shareholders.
The sales and long-lived assets of the Company's operations by geographic area for the last three fiscal years are set forth in Note 17 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report. The Company's foreign operations are conducted principally by the Company's subsidiaries in Singapore, China and France. The Company's foreign operations are subject to the impact of foreign currency fluctuations. See Note 1 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.
In February 2004, the Company discontinued its financial support of Dielektra GmbH, the Company's wholly owned subsidiary located in Cologne, Germany. Dielektra had required substantial financial support from the Company, and the discontinuation of the Company's financial support resulted in the filing of an insolvency petition by Dielektra, which the Company believes will result in the eventual reorganization, sale or liquidation of Dielektra. In accordance with generally accepted accounting principles, the Company is treating Dielektra GmbH as a discontinued operation. Accordingly, the information in this Report has been adjusted to give effect to the Company's treatment of Dielektra GmbH as a discontinued operation. See Note 9 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of
Part II of this Report.
The Company makes available free of charge on its Internet website, www.parkelectro.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. None of the information on the Company's website shall be deemed to be a part of this Report.
Electronic Materials Operations
The Company is a leading global designer and producer of advanced electronic materials used to fabricate complex multilayer printed circuit boards and other electronic interconnection systems, such as multilayer back-planes, wireless packages, high-speed/low-loss multilayers and high density interconnects ("HDIs"). The Company's multilayer printed circuit materials include copper-clad laminates and prepregs. The Company has long-term relationships with its major customers, which include leading independent printed circuit board fabricators, electronic manufacturing service companies, electronic contract manufacturers and major electronic original equipment manufacturers ("OEMs"). Multilayer printed circuit boards and interconnect systems are used in virtually all advanced electronic equipment to direct, sequence and control electronic signals between semiconductor devices (such as microprocessors and memory and logic devices), passive components (such as resistors and capacitors) and connection devices (such as infra- red couplings, fiber optics and surface mount connectors). Examples of end uses of the Company's digital printed circuit materials include high speed routers and servers, storage area networks, supercomputers, laptops, satellite switching equipment, cellular telephones and transceivers, wireless personal digital assistants ("PDAs") and wireless local area networks ("LANs"). The Company's radio frequency ("RF") printed circuit materials are used primarily for military avionics, antennas for cellular telephone base stations, automotive adaptive cruise control systems and avionic communications equipment. The Company has developed long-term relationships with major customers as a result of its leading edge products, extensive technical and engineering service support and responsive manufacturing capabilities.
Park believes it founded the modern day printed circuit industry in 1957 by inventing a composite material consisting of an epoxy resin substrate reinforced with fiberglass cloth which was laminated together with sheets of thin copper foil. This epoxy-glass copper-clad laminate system is still used to construct the large majority of today's advanced printed circuit products. The Company also believes that in 1962 it invented the first multilayer printed circuit materials system used to construct multilayer printed circuit boards. The Company also pioneered vacuum lamination and many other manufacturing technologies used in the industry today. The Company believes it is one of the industry's technological leaders.
As a result of its leading edge products, extensive technical and engineering service support and responsive manufacturing capabilities, the Company expects to continue to take advantage of several industry trends. These trends include the increasingly advanced electronic materials required for interconnect performance and manufacturability, the increasing miniaturization and portability of advanced electronic equipment, the consolidation of the printed circuit board fabrication industry and the time-to-market and time-to-volume pressures requiring closer collaboration with materials suppliers.
The Company believes that it is one of the world's largest manufacturers of advanced multilayer printed circuit materials. It also believes that it is one of only a few significant independent manufacturers of multilayer printed circuit materials in the world. The Company was the first manufacturer in the printed circuit materials industry to establish manufacturing presences in the three major global markets of North America, Europe and Asia, with facilities established in Europe in 1969 and Asia in 1986.
Industry Background
The electronic materials manufactured by the Company and its competitors are used primarily to construct and fabricate complex multilayer printed circuit boards and other advanced electronic interconnection systems. Multilayer printed circuit materials consist of prepregs and copper-clad laminates. Prepregs are chemically and electrically engineered thermosetting or thermoplastic resin systems which are impregnated into and reinforced by a specially manufactured fiberglass cloth product or other woven or non-woven reinforcing fiber. This insulating dielectric substrate generally is 0.030 inch to 0.002 inch in thickness or less in some cases. While these resin systems historically have been based on epoxy resin chemistry, in recent years, increasingly demanding OEM requirements have driven the industry to utilize proprietary enhanced epoxies as well as other higher performance resins, such as bismalimide triazine ("BT"), cyanate ester, polyimide, or polytetrafluoroethylene ("PTFE"). One or more plies of prepreg are laminated together to form an insulating dielectric substrate to support the copper circuitry patterns of a multilayer printed circuit board. Copper-clad laminates consist of one or more plies of prepreg laminated together with specialty thin copper foil laminated on the top and bottom. Copper foil is specially formed in thin sheets which may vary from 0.0030 inch to 0.0002 inch in thickness and normally have a thickness of 0.0014 inch or 0.0007 inch. The Company supplies both copper-clad laminates and prepregs to its customers, which use these products as a system to construct multilayer printed circuit boards.
The printed circuit board fabricator processes copper-clad laminates to form the inner layers of a multilayer printed circuit board. The fabricator photoimages these laminates with a dry film or liquid photoresist. After development of the photoresist, the copper surfaces of the laminate are etched to form the circuit pattern. The fabricator then assembles these etched laminates by inserting one or more plies of dielectric prepreg between each of the inner layer etched laminates and also between an inner layer etched laminate and the outer layer copper plane, and then laminating the entire assembly in a press. Prepreg serves as the insulator between the multiple layers of copper circuitry patterns found in the multilayer circuit board. When the multilayer configuration is laminated, these plies of prepreg form an insulating dielectric substrate supporting and separating the multiple inner and outer planes of copper circuitry. The fabricator drills vertical through-holes or vias in the multilayer assembly and then plates the through-holes or vias to form vertical conductors between the multiple layers of circuitry patterns. These through holes or vias combine with the conductor paths on the horizontal circuitry planes to create a three-dimensional electronic interconnect system. In specialized applications, an additional set of microvia layers (2 or 4, typically) may be added through a secondary lamination process to provide increased density and functionality to the design. The outer two layers of copper foil are then imaged and etched to form the finished multilayer printed circuit board. The completed multilayer board is a three-dimensional interconnect system with electronic signals traveling in the horizontal planes of multiple layers of copper circuitry patterns, as well as the vertical plane through the plated holes or vias.
In the years immediately preceding the severe correction and downturn that occurred in the global electronics industry in the Company's 2002 fiscal year first quarter, the global market for advanced electronic products grew as a result of technological change and frequent new product introductions. This growth was principally attributable to increased sales and more complex electronic content of newer products, such as cellular telephones, pagers, personal computers and portable computing devices and the infrastructure equipment necessary to support the use of these devices, and greater use of electronics in other products, such as automobiles. Further, large, almost completely untapped markets for advanced electronic equipment emerged in such areas as India and China and other areas of the Pacific Rim. During its 2002 fiscal year, the Company established a business center in Wuxi, China, in the Shanghai Nanjing corridor, and in March 2004, the Company announced that it is establishing a new manufacturing facility in the Zhuhai Free Trade Zone approximately 50 miles west of Hong Kong in the Guangdong province in southern China. Both the Shanghai Nanjing corridor and Guangdong province are emerging regions for advanced multilayer printed circuit fabrication in China.
Semiconductor manufacturers have introduced successive generations of more powerful microprocessors and memory and logic devices. Electronic equipment manufacturers have designed these advanced semiconductors into more compact and often portable products. High performance computing devices in these smaller portable platforms require greater reliability, closer tolerances, higher component and circuit density and increased overall complexity. As a result, the interconnect industry has developed smaller, lighter, faster and more cost-effective interconnect systems, including advanced multilayer printed circuit boards.
Advanced interconnect systems require higher technology printed circuit materials to insure the performance of the electronic system and to improve the manufacturability of the interconnect platform. In the years immediately preceding the severe correction and downturn that occurred in the global electronics industry in the Company's 2002 fiscal year first quarter, the growth of the market for more advanced printed circuit materials outpaced the market growth for standard printed circuit materials. Printed circuit board fabricators and electronic equipment manufacturers require advanced printed circuit materials that have increasingly higher temperature tolerances and more advanced and stable electrical properties in order to support high-speed computing in a miniaturized and often portable environment.
With the very high density circuit demands of miniaturized high performance interconnect systems, the uniformity, purity, consistency, performance predictability, dimensional stability and production tolerances of printed circuit materials have become successively more critical. High density printed circuit boards and interconnect systems often involve higher layer count multilayer circuit boards where the multiple planes of circuitry and dielectric insulating substrates are very thin (dielectric insulating substrate layers may be 0.002 inch or less) and the circuit line and space geometries in the circuitry plane are very narrow (0.002 inch or less). In addition, advanced surface mount interconnect systems are typically designed with very small pad sizes and very narrow plated through holes or vias which electrically connect the multiple layers of circuitry planes. High density interconnect systems must utilize printed circuit materials whose dimensional characteristics and purity are consistently manufactured to very high tolerance levels in order for the printed circuit board fabricator to attain and sustain acceptable product yields.
Shorter product life cycles and competitive pressures have induced electronic equipment manufacturers to bring new products to market and increase production volume to commercial levels more quickly. These trends have highlighted the importance of front-end engineering of electronic products and have increased the level of collaboration among system designers, fabricators and printed circuit materials suppliers. As the complexity of electronic products increases, materials suppliers must provide greater technical support to interconnect systems fabricators on a timely basis regarding manufacturability and performance of new materials systems.
Products and Services
The Company produces a broad line of advanced printed circuit materials used to fabricate complex multilayer printed circuit boards and other electronic interconnect systems, including backplanes, wireless packages, high speed/low loss multilayers and HDIs. The Company's diverse advanced printed circuit materials product line is designed to address a wide array of end-use applications and performance requirements.
The Company's electronic materials products have been developed internally and through long-term development projects with its principal suppliers and, to a lesser extent, through licensing arrangements. The Company focuses its research and development efforts on developing industry leading product technology to meet the most demanding product requirements and has designed its product line with a focus on the higher performance, higher technology end of the materials spectrum. All of the Company's existing electronic materials products have been introduced since 1990.
Most of the Company's research and development expenditures are attributable to the efforts of its electronic materials operations. In response to the rapid technological changes in the electronic materials business, these expenditures on research and product development have increased over the past several years.
The Company's products include high-speed, low-loss, digital broadband engineered formulations, high-temperature modified epoxies, bismaleimide triazine epoxies ("BT epoxy"), non-MDA polyimides, enhanced polyimides, high performance epoxy Thermountr materials ("Thermount" is a registered trademark of E.I. duPont de Nemours & Co.), SIT (Signal Integrity) products, cyanate esters and polytetrafluoroethylene ("PTFE") formulations for radio frequency ("RF")/microwave applications.
The Company has developed long-term relationships with select customers through broad-based technical support and service, as well as manufacturing proximity and responsiveness at multiple levels of the customer's organization. The Company focuses on developing a thorough understanding of its customer's business, product lines, processes and technological challenges. The Company seeks customers which are industry leaders committed to maintaining and improving their industry leadership positions and which are committed to long-term relationships with their suppliers. The Company also seeks business opportunities with the more advanced printed circuit fabricators and electronic equipment manufacturers which are interested in the full value of products and services provided by their suppliers. The Company believes its proactive and timely support in assisting its customers with the integration of advanced materials technology into new product designs further strengthens its relationships with its customers.
The Company's emphasis on service and close relationships with its customers is reflected in its short lead times. The Company has developed its manufacturing processes and customer service organizations to provide its customers with printed circuit materials products on a just-in-time basis. The Company believes that its ability to meet its customers' customized manufacturing and quick-turn-around ("QTA") requirements is one of its unique strengths.
The Company has located its advanced printed circuit materials manufacturing operations in strategic locations intended to serve specific regional markets. By situating its facilities in close geographical proximity to its customers, the Company is able to rapidly adjust its manufacturing processes to meet customers' new requirements and respond quickly to customers' technical needs. The Company has technical staffs based at each of its manufacturing locations, which allows the rapid dispatch of technical personnel to a customer's facility to assist the customer in quickly solving design, process, production or manufacturing problems. During the 2002 fiscal year, the Company established a business center in Wuxi near Shanghai in central China, and in March 2004, the Company announced that it is establishing a new manufacturing facility in the Zhuhai Free Trade Zone approximately 50 miles west of Hong Kong in southern China to support the growing customer demand for advanced multilayer printed circuitry materials in China.
Customers and End Markets
The Company's customers for its advanced electronic materials include the leading independent printed circuit board fabricators, electronic manufacturing service companies, electronic contract manufacturers and major electronic original equipment manufacturers ("OEMs") in the computer, networking, telecommunications, transportation, aerospace and instrumentation industries located throughout North America, Europe and Asia. The Company seeks to align itself with the larger, more technologically-advanced and better capitalized independent printed circuit board fabricators and major electronic equipment manufacturers which are industry leaders committed to maintaining and improving their industry leadership positions and to building long-term relationships with their suppliers. The Company's selling effort typically involves several stages and relies on the talents of Company personnel at different levels, from management to sales personnel and quality engineers. In recent years, the Company has augmented its traditional sales personnel with an OEM marketing team and product technology specialists. The Company's strategy emphasizes the use of multiple facilities established in market areas in close proximity to its customers.
During the Company's 2004 fiscal year, approximately 16.3% of the Company's total worldwide sales from its continuing operations were to Sanmina Corporation, a leading electronics contract manufacturer and manufacturer of printed circuit boards, and approximately 12.2% of the Company's total worldwide sales from its continuing operations were to Tyco Printed Circuit Group L.P., a leading manufacturer of printed circuit boards. During the Company's 2003 fiscal year, approximately 19.1% of the Company's total worldwide sales from its continuing operations were to Sanmina Corporation, approximately 11.1% of the Company's total worldwide sales from its continuing operations were to Multilayer Technology, Inc., a manufacturer of multilayer printed circuit boards, and approximately 11.0% of the Company's total worldwide sales from its continuing operations were to Tyco Printed Circuit Group L.P. During the Company's 2004 and 2003 fiscal years, sales to no other customer of the Company equaled or exceeded 10% of the Company's total worldwide sales from continuing operations.
During the Company's 1998 fiscal year and for several years prior thereto, more than 10% of the Company's total worldwide sales were to Delco Electronics Corporation, a subsidiary of General Motors Corp. However, in 1998 Delco closed its printed circuit board fabrication plant, exited the printed circuit board manufacturing business, and ceased being a customer of the Company's. After that time, the Company marketed its semi- finished multilayer circuit board material manufacturing capability to leading printed circuit board fabricators, contract assemblers and electronic original equipment manufacturers in North America. The Company had not previously marketed this capability as its semi-finished multilayer capacity had been largely committed to supplying Delco Electronics. In the first quarter of the fiscal year ended March 3, 2002, the Company sold the assets and business of its subsidiary in Arizona that conducted the mass lamination business and recorded pre-tax charges of approximately $15.7 million in its 2002 fiscal year first quarter ended May 27, 2001 in connection with the sale and the closure of a related support facility to the mass lamination business also located in Arizona. See Item 3 of this Report for a discussion of legal proceedings initiated by the Company against Delco Electronics Corporation.
Although the electronic materials business is not dependent on any single customer, the loss of a major customer or of a group of customers could have a material adverse effect on the electronic materials business.
The Company's electronic materials products are marketed by sales personnel in industrial centers in North America, Europe and Asia. Such personnel include both salaried employees and independent sales representatives who work on a commission basis.
Manufacturing
The process for manufacturing multilayer printed circuit materials is capital intensive and requires sophisticated equipment as well as clean-room environments. The key steps in the Company's manufacturing process include: the impregnation of specially designed fiberglass cloth with a resin system and the partial curing of that resin system; the assembling of laminates consisting of single or multiple plies of prepreg and copper foil in a clean-room environment; the vacuum lamination of the copper- clad assemblies under simultaneous exposure to heat, pressure and vacuum; and the finishing of the laminates to customer specifications.
Prepreg is manufactured in a treater. A treater is a roll-to- roll continuous machine which sequences specially designed fiberglass cloth or other reinforcement fabric into a resin tank and then sequences the resin-coated cloth through a series of ovens which partially cure the resin system into the cloth. This partially cured product or prepreg is then sheeted or paneled and packaged by the Company for sale to customers, or used by the Company to construct its copper-clad laminates.
The Company manufactures copper-clad laminates by first setting up in a clean room an assembly of one or more plies of prepreg stacked together with a sheet of specially manufactured copper foil on the top and bottom of the assembly. This assembly, together with a large quantity of other laminate assemblies, is then inserted into a large, multiple opening vacuum lamination press. The laminate assemblies are then laminated under simultaneous exposure to heat, pressure and vacuum. After the press cycle is complete, the laminates are removed from the press and sheeted, paneled and finished to customer specifications. The product is then inspected and packaged for shipment to the customer.
The Company manufactures multilayer printed circuit materials at six fully integrated facilities located in the United States, Europe and Southeast Asia. The Company opened its California facility in 1965, its first Arizona and France facilities in 1984, its Singapore facility in 1986 and its second France facility in 1992. The Company services the North America market principally through its United States manufacturing facilities, the European market principally through its manufacturing facilities in France, and the Asian market principally through its Singapore manufacturing facility. During its 2002 fiscal year, the Company established a business center in central China, and in March 2004, the Company announced that it is establishing a new manufacturing facility in the Zhuhai Free Trade Zone approximately 50 miles west of Hong Kong in southern China to supply the growing demand for advanced multilayer printed circuitry materials in China. The Company has located its manufacturing facilities in its important markets. By maintaining technical and engineering staffs at each of its manufacturing facilities, the Company is able to deliver fully- integrated products and services on a timely basis.
The Company expanded the manufacturing capacity of its electronic materials facilities in recent years. During the 2000 fiscal year, the Company completed expansions of its electronic materials operations in Singapore and France. During the 2002 fiscal year, the Company completed a significant expansion of its higher technology product line manufacturing facility in Arizona and established the capability to manufacture PTFE materials for RF/microwave applications at its Neltec high performance materials facility in Tempe, Arizona, augmenting the Company's PTFE manufacturing capability in Lannemezan, France. During the 2004 fiscal year, the Company completed the expansion of its manufacturing facility in Singapore and began the process of installing one of its latest generation high-technology treaters in its newly expanded facility in Singapore and the Company began utilization of its higher technology product line manufacturing facility in Arizona. In addition, as state above, the Company announced in March 2004 that it is establishing a new manufacturing facility in the Zhuhai Free Trade Zone in southern China, approximately 50 miles west of Hong Kong.
As a result of the persistent and pervasive depressed state of the worldwide electronics manufacturing industry following the severe downturn that occurred during the Company's 2002 fiscal year first quarter, the Company closed its Nelco U.K. manufacturing facility in Skelmersdale, England during its 2003 fiscal year third quarter, announced the closure of the mass lamination operation of its Dielektra electronic materials manufacturing business in Germany and the realignment of its North American FR-4 electronic materials operations in New York and California in its 2004 fiscal year first quarter, and discontinued its financial support of its Dielektra GmbH subsidiary located in Cologne, Germany in its fiscal year 2004 fourth quarter ended February 29, 2004, which resulted in the insolvency of Dielektra GmbH. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of this Report and Notes 9, 10 and 11 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for a discussion of the significant pre-tax charges recorded by the Company in the 2003 and 2004 fiscal years.
Materials and Sources of Supply
The principal materials used in the manufacture of the Company's electronic products are specially manufactured copper foil, fiberglass cloth and synthetic reinforcements, and specially formulated resins and chemicals. The Company attempts to develop and maintain close working relationships with suppliers of those materials who have dedicated themselves to complying with the Company's stringent specifications and technical requirements. While the Company's philosophy is to work with a limited number of suppliers, the Company has identified alternate sources of supply for each of these materials. However, there are a limited number of qualified suppliers of these materials, substitutes for these materials are not readily available, and, in the recent past, the industry has experienced shortages in the market for certain of these materials. While the Company has not experienced significant problems in the delivery of these materials and considers its relationships with its suppliers to be strong, a disruption of the supply of materials could materially adversely affect the business, financial condition and results of operations of the Company. Significant increases in the cost of materials purchased by the Company could also have a material adverse effect on the Company's business, financial condition and results of operations if the Company were unable to pass such price increases through to its customers.
Competition
The multilayer printed circuit materials industry is characterized by intense competition and ongoing consolidation. The Company's competitors are primarily divisions or subsidiaries of very large, diversified multinational manufacturers which are substantially larger and have greater financial resources than the Company and, to a lesser degree, smaller regional producers. Because the Company focuses on the higher technology segment of the electronic materials market, technological innovation, quality and service, as well as price, are significant competitive factors.
The Company believes that there are approximately ten significant multilayer printed circuit materials manufacturers in the world and many of these competitors have significant presences in the three major global markets of North America, Europe and Asia. The Company believes that the multilayer printed circuit materials industry has become more global and that the remaining smaller regional manufacturers are finding it increasingly difficult to remain competitive. The Company believes that it is currently one of the world's largest multilayer printed circuit materials manufacturers. The Company further believes it is one of only a few significant independent manufacturers of multilayer printed circuit materials in the world today.
The markets in which the Company's electronic materials operations compete are characterized by rapid technological advances, and the Company's position in these markets depends largely on its continued ability to develop technologically advanced and highly specialized products. Although the Company believes it is an industry technology leader and directs a significant amount of its time and resources toward maintaining its technological competitive advantage, there is no assurance that the Company will be technologically competitive in the future, or that the Company will continue to develop new products that are technologically competitive.
Advanced Composite Operations
FiberCote Industries, Inc., the Company's advanced composite materials business, develops and produces engineered composite materials for the aerospace, rocket motor, electronics, radio frequency and specialty industrial markets.
Marketing and Customers
The Company's advanced composite materials customers, substantially all of which are located in the United States, include manufacturers in the automotive, graphic arts, aerospace, rocket motor, electronics, RF and specialty industrial industries. Such materials are marketed by sales personnel including both salaried employees and independent sales representatives who work on a commission basis.
While no single advanced composite materials customer accounted for 10% or more of the Company's total sales during the last fiscal year, the loss of a major customer or of a group of some of the largest customers of the advanced composite materials business could have a material adverse effect upon the business.
Manufacturing and Sources of Supply
The Company's advanced composite materials manufacturing facility is located in Waterbury, Connecticut.
The Company designs and manufactures its advanced composite materials to its own specifications and to the specifications of its customers. Product development efforts are devoted to conforming the Company's advanced composites to the specifications of, and obtaining approvals from, the Company's customers. The materials used in the manufacture of these engineered materials include graphite and carbon fibers and fabrics, Kevlarr ("Kevlar" is a registered trademark of E.I. du Pont de Nemours & Co.), quartz, fiberglass, polyester, chemicals, resins, films, plastics, adhesives and certain other synthetic materials. The Company purchases these materials from several suppliers. Although satisfactory substitutes for many of these materials are not readily available, the Company has experienced no difficulties in obtaining such materials.
Competition
The Company has many competitors in the advanced composite materials business, including some major corporations which have substantially greater financial resources than the Company. The Company competes for business on the basis of product performance and development, product qualification and approval, the ability to manufacture and deliver products in accordance with customers' needs and requirements, and price.
Backlog
The Company records an item as backlog when it receives a purchase order specifying the number of units to be purchased, the purchase price, specifications and other customary terms and conditions. At May 2, 2004, the unfilled portion of all purchase orders received by the Company and believed by it to be firm was approximately $8,111,000, compared to $3,966,000 at May 4, 2003. The increase in backlog at May 2, 2004 compared to May 4, 2003 was due primarily to the upturn in the Company's business that began during the second half of its 2004 fiscal year resulting from the improvement in the global electronics industry.
Various factors contribute to the size of the Company's backlog. Accordingly, the foregoing information may not be indicative of the Company's results of operations for any period subsequent to the fiscal year ended February 29, 2004.
Patents and Trademarks
The Company holds several patents and trademarks or licenses thereto. In the Company's opinion, some of these patents and trademarks are important to its products. Generally, however, the Company does not believe that an inability to obtain new, or to defend existing, patents and trademarks would have a material adverse effect on the Company.
Employees
At February 29 2004, the Company had approximately 1,200 employees. Of these employees, 1,100 were engaged in the Company's electronic materials operations, 50 in its advanced composite materials operations and 50 consisted of executive personnel and general administrative staff. As a result of a severe correction and downturn in the global electronics industry and, consequently, in the Company's electronic materials business, the Company reduced its total number of employees during the first two months of its 2002 fiscal year from approximately 2,850 total employees to approximately 2,330 total employees at April 30, 2001, and during the remainder of the 2002 fiscal year the Company's total number of employees declined to approximately 1,700. The total number of employees further declined to approximately 1,400 at the end of the 2003 fiscal year. None of the Company's employees are subject to a collective bargaining agreement. Management considers its employee relations to be good.
Environmental Matters
The Company is subject to stringent environmental regulation of its use, storage, treatment and disposal of hazardous materials and the release of emissions into the environment. The Company believes that it currently is in substantial compliance with the applicable federal, state and local environmental laws and regulations to which it is subject and that continuing compliance therewith will not have a material effect on its capital expenditures, earnings or competitive position. The Company does not currently anticipate making material capital expenditures for environmental control facilities for its existing manufacturing operations during the remainder of its current fiscal year or its succeeding fiscal year. However, developments, such as the enactment or adoption of even more stringent environmental laws and regulations, could conceivably result in substantial additional costs to the Company.
The Company and certain of its subsidiaries have been named by the Environmental Protection Agency (the "EPA") or a comparable state agency under the Comprehensive Environmental Response, Compensation and Liability Act (the "Superfund Act") or similar state law as potentially responsible parties in connection with alleged releases of hazardous substances at eight sites. In addition, a subsidiary of the Company has received cost recovery claims under the Superfund Act from other private parties involving two other sites and has received requests from the EPA under the Superfund Act for information with respect to its involvement at three other sites. Under the Superfund Act and similar state laws, all parties who may have contributed any waste to a hazardous waste disposal site or contaminated area identified by the EPA or comparable state agency may be jointly and severally liable for the cost of cleanup. Generally, these sites are locations at which numerous persons disposed of hazardous waste. In the case of the Company's subsidiaries, generally the waste was removed from their manufacturing facilities and disposed at the waste sites by various companies which contracted with the subsidiaries to provide waste disposal services. Neither the Company nor any of its subsidiaries have been accused of or charged with any wrongdoing or illegal acts in connection with any such sites. The Company believes it maintains an effective and comprehensive environmental compliance program. Management believes the ultimate disposition of known environmental matters will not have a material adverse effect upon the Company.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Environmental Matters" included in Item 7 of Part II of this Report and Note 15 of the Notes to Consolidated Financial Statements included in Item 8 of
Part II of this Report.
Item 2. Properties.
Set forth below are the locations of the significant properties owned and leased by the Company, the businesses which use the properties, and the size of each such property. All of such properties, except for the Lake Success, New York property, are used principally as manufacturing, warehouse and assembly facilities.
Owned Size
Location or Use (Square
Leased Footage)
Lake Success, NY Leased Administrative 7,000
Offices
Newburgh, NY Leased Electronic 171,000
Materials
Fullerton, CA Leased Electronic 95,000
Materials
Anaheim, CA Leased Electronic 26,000
Materials
Tempe, AZ Leased Electronic 87,000
Materials
Mirebeau, France Owned Electronic 81,000
Materials
Lannemezan, Owned Electronic 29,000
France Materials
Singapore Leased Electronic 128,000
Materials
Kuching, Leased Electronic 11,000
Malaysia Materials
Wuxi, China Leased Electronic 12,000
Materials
Waterbury, CT Leased Advanced 100,000
Composites
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The Company believes its facilities and equipment to be in good condition and reasonably suited and adequate for its current needs. During the 2004 fiscal year, certain of the Company's electronic manufacturing facilities were utilized at less than 50% of their capacity.
Item 3. Legal Proceedings.
In May 1998, the Company and its Nelco Technology, Inc. ("NTI") subsidiary in Arizona filed a complaint against Delco Electronics Corporation and the Delphi Automotive Systems unit of General Motors Corp. in the United States District Court for the District of Arizona. The complaint alleged, among other things, that Delco breached its contract to purchase semi-finished multilayer printed circuit boards from NTI and that Delphi interfered with NTI's contract with Delco, that Delco breached the covenant of good faith and fair dealing implied in the contract, that Delco engaged in negligent misrepresentation and that Delco fraudulently induced NTI to enter into the contract.
In November 2000, after a trial in Phoenix, Arizona, a jury awarded damages to NTI in the amount of $32.3 million, and in December 2000 the judge in the United States District Court entered judgment for NTI on its claim of breach of the implied covenant of good faith and fair dealing with damages in the amount of $32.3 million. Both parties appealed the decision to the United States Court of Appeals for the Ninth Circuit in San Francisco, and in May 2003, a panel of three judges in the Court of Appeals for the Ninth Circuit rendered a unanimous decision affirming the jury verdict. In June 2003, the United States District Court for the District of Arizona entered final judgment in favor of NTI, and Delco paid NTI on July 1, 2003. NTI received a net amount of $33.1 million. See Note 19 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.
Park announced in March 1998 that it had been informed by Delco Electronics that Delco planned to close its printed circuit board fabrication plant and exit the printed circuit board manufacturing business. After the plant closure, Delco purchased all of its printed circuit boards from outside suppliers and Delco was no longer a customer of the Company's. As a result, the Company's sales to Delco declined significantly during the three- month period ended May 31, 1998, were negligible during the three- month period ended August 30, 1998 and have been nil since that time. During the Company's 1999 fiscal year first quarter and during its 1998 fiscal year and for several years prior thereto, more than 10% of the Company's total worldwide sales were to Delco Electronics Corporation; and the Company had been Delco's principal supplier of semi-finished multilayer printed circuit board materials for more than ten years. These materials were used by Delco to produce finished multilayer printed circuit boards. See "Business-Electronic Materials Operations-Customers and End Markets" in Item 1 of this Report, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Report and "Factors That May Affect Future Results" after Item 7 of this Report.
In the first quarter of the fiscal year ended March 3, 2002, the Company sold the assets and business of NTI and recorded pre- tax charges of approximately $15.7 million in its 2002 fiscal year first quarter in connection with the sale of NTI and the closure of a related support facility also located in Arizona. See Notes 10 and 13 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Executive Officers of the Registrant.
Name Title Age
Brian E. Shore Chief Executive Officer,
President and a Director 52
Stephen E. Senior Vice President,
Gilhuley Secretary and General Counsel 59
Emily J. Groehl Senior Vice President, Sales
and Marketing 57
John Jongebloed Senior Vice President, Global 47
Logistics
Steven P. Senior Vice President, 43
Schaefer Technology
Thomas T. Spooner Senior Vice President,
Corporate and Technology 67
Development
Murray O. Stamer Senior Vice President and
Chief Financial Officer 46
Gary M. Watson Senior Vice President,
Engineering and Technology
and Senior Vice President, 56
Asian Business Unit
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Mr. Shore has served as a Director of the Company since 1983. He was elected a Vice President of the Company in January 1993, Executive Vice President in May 1994, President effective March 4, 1996, the first day of the Company's 1997 fiscal year, and Chief Executive Officer in November 1996. Mr. Shore also served as General Counsel of the Company from April 1988 until April 1994.
Mr. Gilhuley has been General Counsel of the Company since April 1994 and Secretary since July 1996. He was elected a Senior Vice President in March 2001.
Ms. Groehl was elected Senior Vice President of Park in May 1999. Prior to May 1999, she had been with one of Park's "Nelco" business units for more than ten years. She was elected Vice President of New England Laminates Co., Inc. in 1988 and was Vice President, Marketing and Sales of Nelco International Corporation from 1993 until June 1999, when Nelco International Corporation merged into Park Electrochemical Corp.
Mr. Jongebloed was elected Senior Vice President of Park in July 2001. Prior to July 2001, he had been employed by one of Park's "Nelco" business units for more than nine years. He was Vice President and General Manager of New England Laminates Co., Inc. from January 1992 to May 1999, and President and General Manager of New England Laminates Co., Inc. from May 1999 to August 2002 and since April 28, 2003.
Mr. Schaefer has been employed by Park since January 15, 2001 when he became Product Director, High Volume Products of Park. He was promoted to Senior Director of Product Technology in March 2002 and appointed Vice President of Business Development in February 2003. He was elected Senior Vice President, Technology on July 17, 2003. Mr. Schaefer was Business Manager, Electronic Chemicals of OM Group, Inc. from February 1999 to January 2001; and prior to February 1999, Mr. Schaefer was employed by LeaRonal, Inc. in various positions, including National Sales Manager.
Mr. Spooner was elected Senior Vice President, Technology of Park in May 1999. His title was changed to Senior Vice President, Corporate and Technology Development in May 2001. Prior to May 1999, he had been employed by one of Park's "Nelco" business units for more than five years. He was Vice President, Technology of Nelco International Corporation from 1993 until June 1999, when Nelco International Corporation merged into Park Electrochemical Corp. Mr. Spooner retired as Senior Vice President, Corporate and Technology Development on March 21, 2004 and became a part-time employee of the Company providing advisory services to the Company.
Mr. Stamer has been employed by the Company since 1989 and served as the Company's Corporate Controller from 1993 to May 1999, when he was elected Treasurer. He was elected Senior Vice President, Finance in March 2001 and Senior Vice President and Chief Financial Officer on July 17, 2003.
Mr. Watson was elected Senior Vice President, Engineering in June 2000. His title was changed to Senior Vice President, Engineering and Technology in May 2001 and to Senior Vice President, Engineering in July 2003. In addition, he became Senior Vice President, Asian Business Unit in August 2002. Prior to June 2000, Mr. Watson was Senior Director, Manufacturing Process Technology of Fort James Corporation since March 1999; Vice President, Research and Development of Boise Cascade Corporation from 1992 to March 1999; and Business Division Technology Manager of Weyerhauser Company from 1986 to 1992.
There are no family relationships between the directors or executive officers of the Company, except that Brian Shore is the son of Jerry Shore, who is the Chairman of the Board and a Director of the Company, and has been the Chairman of the Board and a Director since the Company was founded in 1954, and who also served as President of the Company for many years until March 4, 1996 and as Chief Executive Officer of the Company for forty-two years until November 19, 1996.
Each executive officer of the Company serves at the pleasure of the Board of Directors of the Company.
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters.
The Company's Common Stock is listed and trades on the New York Stock Exchange (trading symbol PKE). (The Common Stock also trades on the Midwest Stock Exchange.) The following table sets forth, for each of the quarterly periods indicated, the high and low sales prices for the Common Stock as reported on the New York Stock Exchange Composite Tape and dividends declared on the Common Stock.
For the Fiscal Year Stock Price Dividends Ended February 29, 2004 High Low Declared First Quarter $19.67 $14.03 $.06 Second Quarter 23.35 17.91 $.06 Third Quarter 25.55 22.35 $.06 Fourth Quarter 30.18 23.39 $.06 For the Fiscal Year Stock Price Dividends Ended March 2, 2003 High Low Declared First Quarter $31.45 $26.76 $.06 Second Quarter 28.15 19.10 $.06 Third Quarter 21.70 14.00 $.06 Fourth Quarter 22.14 15.27 $.06 |
As of May 7, 2004, there were approximately 1,371 holders of record of Common Stock.
The Company expects, for the immediate future, to continue to pay regular cash dividends.
Item 6. Selected Financial Data.
The following selected consolidated financial data of Park and its subsidiaries is qualified by reference to, and should be read in conjunction with, the consolidated financial statements, related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere herein. Insofar as such consolidated financial information relates to the five fiscal years ended February 29, 2004 and is as of the end of such periods, it is derived from the con solidated financial statements for such periods and as of such dates audited by Ernst & Young LLP, independent auditors. The consolidated financial statements as of February 29, 2004 and March 2, 2003 and for the three years ended February 29, 2004, together with the independent auditors' report for the three years ended February 29, 2004, appear in Item 8 of Part II of this Report.
Fiscal Year Ended
(In thousands, except per share amounts)
Feb. 29, March 2, March 3, Feb. 25, Feb. 27,
2004 2003 2002 2001 2000
STATEMENTS OF EARNINGS
INFORMATION:
Net sales $194,236 $195,578 $201,681 $469,121 $381,685
Cost of sales 161,536 168,921 185,014 355,400 310,532
Gross profit 32,700 26,657 16,667 113,721 71,153
Selling, general and
administrative expenses 27,962 27,157 33,668 47,683 42,921
Gain on Delco lawsuit
(Note 19) (33,088) - - - -
Asset Impairment
charge (Note 11) - 49,035 - - -
Restructuring and
severance Charges
(Note 10) 8,469 4,794 806 - -
Gain on sale of DPI
(Note 12) - (3,170) - - -
Gain on sale of UK
real estate (429) - - - -
Loss on sale of NTI and
closure of related
support facility (Note 13) - - 15,707 - -
Closure of plumbing
hardware Business - - - - 4,464
Earnings (loss) from
operations 29,786 (51,159) (33,514) 66,038 23,768
Interest and other
income, net 2,958 3,260 5,373 2,720 805
Earnings (loss) from
continuing operations
before income taxes 32,744 (47,899) (28,141) 68,758 24,573
Income tax provision
(benefit) from
continuing operations 2,835 (4,035) (10,727) 20,963 6,085
Earnings (loss) from
continuing Operations 29,909 (43,864) (17,414) 47,795 18,488
(Loss) earnings from
discontinued operations,
net of taxes (Note 9) (33,761) (6,895) (8,105) 1,624 (191)
Net (loss) earnings $(3,852) $(50,759) $(25,519) $49,419 $18,297
Basic earnings (loss)
per share:
Earnings (loss) from
continuing Operations $ 1.51 $ (2.23) $ (0.89) $ 3.00 $ 1.17
(Loss) earnings from
discontinued operations,
net of tax (1.71) (0.35) (0.42) 0.10 (0.01)
Basic (loss) earnings
per share $ (0.20) $ (2.58) $ (1.31) $ 3.10 $ 1.16
Diluted earnings
(loss) per share:
Earnings (loss) from
continuing operations $ 1.50 $ (2.23) $ (0.89) $ 2.57 $ 1.13
(Loss) earnings from
discontinued operatons,
net of tax (1.69) (0.35) (0.42) 0.08 (0.01)
Diluted (loss)
earnings per share $ (0.19) $ (2.58) $ (1.31) $ 2.65 $ 1.12
Cash dividends per
common share $ 0.24 $ 0.24 $ 0.24 $ 0.23 $ 0.21
Weighted average
number of common
shares outstanding:
Basic 19,754 19,674 19,535 15,932 15,761
Diluted 19,991 19,674 19,535 20,002 19,643
BALANCE SHEET
INFORMATION:
Working capital $197,453 $170,274 $167,000 $188,511 $176,113
Total assets 311,070 301,542 360,644 430,581 365,252
Long-term debt - - - 97,672 100,000
Stockholders' equity 243,896 245,701 292,546 228,906 179,118
See Notes to Consolidated Financial Statements in Item 8 of Part II of this Report.
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Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
General:
Park is a leading global designer and producer of advanced electronic materials used to fabricate complex multilayer printed circuit boards and other electronic interconnect systems. The Company's customers include leading independent printed circuit board fabricators, electronic manufacturing service companies, electronic contract manufacturers and major electronic original equipment manufacturers in the computer, telecommunications, transportation, aerospace and instrumentation industries.
The severe correction and downturn that occurred in the global electronics industry early in the fiscal year ended March 3, 2002 and that dramatically affected the Company's financial performance during that fiscal year and during the fiscal year ended March 2, 2003, with declines in sales by the Company's North American, European and Asian operations, abated during the second half of the fiscal year ended February 29, 2004. And, in the second half of the 2004 fiscal year, the electronic materials market in Asia and the markets for the Company's higher technology products strengthened. Nevertheless, the Company's sales declined during the 2004 fiscal year, although not as steeply as in the prior fiscal year, with decreased sales of electronic materials in North America and Europe.
While the Company's FR-4 operations in North America and Europe continued to be weak during the 2004 fiscal year as almost all markets for sophisticated printed circuit materials continued to experience depressed conditions, the Company's gross profit in the 2004 fiscal year was significantly greater than its gross profit in the 2003 fiscal year as a result of the Company's reductions of its costs and expenses and higher percentages of sales of higher technology, higher margin products.
Although the Company's sales increased slightly in the six- month period ended February 29, 2004 compared with last fiscal year's comparable period principally as a result of increases in sales of the Company's advanced technology products, sales by the Company's operations in Asia and sales by the Company's FiberCote advanced composite materials business, the Company's sales for the 2004 fiscal year were lower than its sales for the 2003 fiscal year as a result of declines in sales by the Company's North American and European FR-4 operations.
The electronics industry began to improve slightly at the end of the 2004 fiscal year second quarter and continued to improve in the third and fourth quarters, and there exist some indications that the improvement will continue. However, it is not completely clear whether and to what degree the improvement is sustainable. The Company's advanced electronic materials business, its Asian business unit and its FiberCote advanced composite materials business performed reasonably well during the six-month and twelve-month periods ended February 29, 2004, while the Company's higher-volume FR-4 business units in Europe and North America performed poorly.
During the 2004 fiscal year, the Company opened a facility at its advanced products business unit in Arizona that had been completed in its 2002 fiscal year and that is now being well utilized, completed the construction of its facility expansion in Singapore and proceeded with its final planning for the installation of a new manufacturing facility in China.
During the first half of the 2004 fiscal year, the Company realigned its North American FR-4 business operations located in New York and California. As part of the realignment, the New York operation was scaled down to a smaller focused operation and the California operation was scaled up to a larger volume operation, and there were significant workforce reductions at the Company's New York facility and significant workforce increases at the Company's California facility, with the end result being a net reduction in the Company's workforce in North America. A large portion of the New York facility was mothballed. The Company has the flexibility in the future to scale back up the Newburgh, New York facility if the opportunity to do so presents itself. The realignment was designed to help the Company achieve improved operating and cost efficiencies in its North American FR-4 business and to help the Company best service all of its North American customers.
As a result of the Company's realignment of its North American FR-4 business operations and related workforce reductions, the Company recorded pre-tax charges totaling $2.0 million in the Company's 2004 fiscal year first quarter, and the Company recorded additional pre-tax charges of $6.5 million in the 2004 fiscal year second quarter due to such realignment. The Company also recorded a pre-tax gain of $0.4 million in the 2004 fiscal year third quarter resulting from the sale of real estate previously used by its Nelco UK subsidiary, which ceased operations after its closure in the 2003 fiscal year third quarter. See Note 10 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for additional information regarding the realignment and closure.
In February 2004, the Company discontinued its financial support of Dielektra GmbH, the Company's wholly owned subsidiary located in Cologne, Germany ("Dielektra"), which supplied electronic materials to European circuit board manufacturers. The Company discontinued its support of Dielektra because the market in Europe had eroded to the point where the Company believed it would not be possible, at any time in the foreseeable future, for the Dielektra business to be viable. Dielektra had required substantial financial support from the Company. The discontinuation of the Company's financial support resulted in the filing of an insolvency petition by Dielektra. The Company believes that the insolvency procedure in Germany will result in the eventual reorganization, sale or liquidation of Dielektra. The Company intends to continue to service the higher technology European digital and RF circuit board markets through its Nelco, SAS business located in Mirebeau, France, and its Neltec, SA business located in Lannemezan, France.
In accordance with generally accepted accounting principles, the Company is treating Dielektra as a discontinued operation. Accordingly, the Company reclassified Dielektra's operating losses and charges and recorded a net loss from discontinued operations of $33.8 million in the 2004 fiscal year, comprised of $5.6 million of operating losses incurred by Dielektra, $6.2 million related to the closure of Dielektra's mass lamination operation and related workforce reductions in the 2004 fiscal year first quarter and $22.0 million for the write-off of assets of Dielektra and other costs, the Company recorded a net loss from discontinued operations in the 2003 fiscal year of $6.9 million, comprised of $5.7 million of operating losses incurred by Dielektra and $1.2 million for after-tax fixed asset impairment charges, and the Company recorded a net loss from discontinued operations in the 2002 fiscal year of $8.1 million, comprised of $5.2 million of operating losses incurred by Dielektra and $2.9 million related to the realignment of the operations of Dielektra. Furthermore, the Company's sales from its continuing operations did not include sales by Dielektra of $14.4 million for the 2004 fiscal year, $21.2 million for the 2003 fiscal year and $28.4 million for the 2002 fiscal year. See Note 9 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for additional information regarding the discontinued operations.
During the 2003 fiscal year, the Company recorded pre-tax charges totaling $53.8 million related to the write-downs of fixed assets at its continuing operations in North America resulting from the realignment of its North American FR-4 business operations in New York and California, workforce reductions at a North American business unit, and the closure of its Nelco U.K. manufacturing facility. These charges were only slightly offset by the pre-tax gain of $3.2 million realized by the Company during the 2003 fiscal year second quarter in connection with the sale of its Dielectric Polymers, Inc. ("DPI") subsidiary for $5.0 million cash. See Notes 10, 11 and 12 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for additional information regarding the asset write-downs, workforce reductions and closure and the sale of DPI.
The Company recorded a pre-tax charge of $4.7 million in its 2003 fiscal year third quarter for the cost of closing its Nelco U.K. manufacturing facility located in Skelmersdale, England in response to the almost complete collapse of the U.K. high technology circuit board industry. For many years, Nelco U.K. was one of the most vital parts of the Company's global high technology circuit materials business, but the U.K. high technology circuit board industry had been devastated, and the closure of the Nelco U.K. facility was unavoidable, as there was not enough business available in the entire U.K. market to justify the Company's having an operation in the U.K. The Company is supplying its few remaining customers in the U.K. with product produced at its Nelco facility located in Mirebeau, France and will continue to provide these U.K. customers with local account management, technical service and materials and inventory support. In addition, the Company recorded a pre-tax charge of $0.1 million during the 2003 fiscal year third quarter for severance payments for workforce reductions at a North American business unit. See Note 10 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for additional information regarding the closure and severance payments.
During the fourth quarter of the 2003 fiscal year, the Company reassessed the recoverability of the fixed assets of those operations based on cash flow projections and determined that such fixed assets were impaired, and the Company recorded pre-tax impairment charges of $49.0 million in the Company's 2003 fiscal year fourth quarter to reduce the book values of such fixed assets to their estimated fair values. See Note 11 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for additional information regarding the asset impairment charges.
During the Company's 1998 fiscal year and for several years prior thereto, more than 10% of the Company's total worldwide sales were to Delco Electronics Corporation, a subsidiary of General Motors Corp. ("Delco"), and the Company's wholly owned subsidiary, Nelco Technology, Inc. ("NTI") located in Tempe, Arizona, had been Delco's principal supplier of semi-finished multilayer printed circuit board materials, commonly known as mass lamination, which were used by Delco to produce finished multilayer printed circuit boards. However, in March 1998, the Company was informed by Delco that Delco planned to close its printed circuit board fabrication plant and exit the printed circuit board manufacturing business. As a result, the Company's sales to Delco declined during the three-month period ended May 31, 1998, were negligible during the remainder of the 1999 fiscal year and have been nil since that time.
In May 1998, the Company and NTI filed a complaint against Delco and the Delphi Automotive Systems unit of General Motors Corp. in the United States District Court for the District of Arizona. The complaint alleged, among other things, that Delco breached its contract to purchase semi-finished multilayer printed circuit boards from NTI and that Delphi interfered with NTI's contract with Delco, that Delco breached the covenant of good faith and fair dealing implied in the contract, that Delco engaged in negligent misrepresentation and that Delco fraudulently induced NTI to enter into the contract. In November 2000, a jury awarded damages to NTI in the amount of $32.3 million, and in December 2000 the judge in the United States District Court for the District of Arizona entered judgment for NTI on its claim of breach of the implied covenant of good faith and fair dealing with damages in the amount of $32.3 million. Both parties appealed the decision to the United States Court of Appeals for the Ninth Circuit in San Francisco; and in May 2003, a panel of three judges in the Court of Appeals for the Ninth Circuit rendered a unanimous decision affirming the jury verdict. In June 2003, the United States District Court for the District of Arizona entered final judgment in favor of NTI; and, on July 1, 2003, NTI received a net amount of $33.1 million in payment of such judgment. The Company recorded a non-recurring, pre-tax gain of $33.1 million in the 2004 fiscal year second quarter related to such payment. See Notes 13 and 19 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report for additional information regarding the sale of NTI and the gain on the lawsuit against Delco and Item 3 of Part I of this Report for additional information regarding the lawsuit against Delco.
The Company is not engaged in any related party transactions involving relationships or transactions with persons or entities that derive benefits from their non-independent relationship with the Company or the Company's related parties, or in any transactions with parties with whom the Company or its related parties have a relationship that enables the parties to negotiate terms of material transactions that may or would not be available from other, more clearly independent parties on an arm's-length basis, or in any trading activities involving non-exchange traded commodity or other contracts that are accounted for at fair value or otherwise or in any energy trading or risk management activities, other than certain limited foreign currency contracts intended to hedge the Company's contractual commitments to pay certain obligations or to realize certain receipts in foreign currencies and certain limited energy purchase contracts intended to protect the Company from increased utilities costs.
The Company believes that an evaluation of its ongoing operations would be difficult if the disclosure of its financial results were limited to generally accepted accounting principles ("GAAP") financial measures. Accordingly, in addition to disclosing its financial results determined in accordance with GAAP, the Company discloses non-GAAP operating results that exclude certain items in order to assist its shareholders and other readers in assessing the Company's operating performance. Such non-GAAP financial measures are provided to supplement the results provided in accordance with GAAP.
Fiscal Year 2004 Compared with Fiscal Year 2003:
The Company's FR-4 operations in North America and Europe continued to be weak during the fiscal year ended February 29, 2004 as the North American, European and, to a lesser extent, Asian markets for sophisticated printed circuit materials continued to experience depressed conditions.
Nevertheless, the Company's continuing operations generated a profit during the 2004 fiscal year as a result of a significant improvement in its gross profit.
The Company's gross profit in the 2004 fiscal year was substantially higher than the gross profit in the prior fiscal year and improved significantly in the six months ended February 29, 2004 as a result of the Company's reductions of its costs and expenses and higher percentages of sales by the Company of its higher margin, advanced technology products. These improvements in gross profits occurred despite slightly lower levels of sales of electronic materials in the 2004 fiscal year and only slightly increased sales in the third and fourth quarters, operating inefficiencies resulting from operating certain facilities at levels far below their designed manufacturing capacities and from the Company's realignment of its North American FR-4 business operations, and competitive pressures.
The Company's financial results of operations were substantially enhanced by the pre-tax gain of $33.1 million that the Company recorded in the 2004 fiscal year second quarter related to the payment by Delco Electronics Corporation of the judgment against Delco in favor of the Company's subsidiary, Nelco Technology, Inc., in its lawsuit against Delco, which more than offset the pre-tax charges of $8.5 million that the Company recorded in the 2004 fiscal year related to the Company's realignment of its North American FR-4 business operations in the first and second quarters.
In the 2004 fiscal year, the Company classified Dielektra's operating losses and charges and accordingly recorded a net loss from discontinued operations of $33.8 million as a result of the Company's discontinuation of its financial support of Dielektra in February 2004, the ensuing insolvency of Dielektra, and the Company's treatment of Dielektra as a discontinued operation. The net loss from discontinued operations was comprised of $5.6 million of operating losses incurred by Dielektra, $6.2 million related to the closure of Dielektra's mass lamination operation and related workforce reductions in the 2004 fiscal year first quarter and $22.0 million for the write-off of assets of Dielektra and other costs. In the 2003 fiscal year, the Company recorded a net loss from discontinued operations of $6.9 million, comprised of $5.7 million of operating losses incurred by Dielektra and $1.2 million for after-tax fixed asset impairment charges. In addition, the Company's sales from its continuing operations excluded sales by Dielektra of $14.4 million for the portion of the 2004 fiscal year during which the Company was supporting Dielektra and $21.2 million for the 2003 fiscal year.
Operating results of the Company's advanced composite materials business also improved significantly during the 2004 fiscal year primarily as a result of increased sales and higher percentages of sales of higher margin products.
Results of Operations
Net sales from continuing operations for the fiscal year ended February 29, 2004 declined less than 1% to $194.2 million from $195.6 million for the fiscal year ended March 2, 2003. The decrease in net sales from continuing operations was principally the result of lower unit volumes of materials shipped by the Company's FR-4 operations in North America and Europe, almost entirely offset by higher unit volumes of materials shipped by the Company's operations in Asia.
The Company's sales from continuing operations did not include sales by Dielektra of $14.4 million for the 2004 fiscal year and $21.2 million for the 2003 fiscal year.
The Company's foreign operations accounted for $88.2 million of sales, or 45% of the Company's total sales worldwide from continuing operations, during the 2004 fiscal year, compared with $77.7 million of sales, or 40% of total sales worldwide from continuing operations, during the 2003 fiscal year and 34% of total sales worldwide from continuing operating during the 2002 fiscal year. Sales by the Company's foreign operations during the 2004 fiscal year increased from the 2003 fiscal year due to increases in sales in Asia and France while sales by the Company's operations in England were nil during the 2004 fiscal year.
The overall gross profit as a percentage of net sales for the Company's worldwide continuing operations improved to 16.8% during the 2004 fiscal year compared with 13.6% during the 2003 fiscal year. The improvement in the gross profit margin was attributable to higher percentages of sales of higher margin, advanced technology products, as high performance materials accounted for 89% of worldwide sales from continuing operations for the 2004 fiscal year compared with 84% for the prior fiscal year, and reductions in the Company's costs from the 2003 fiscal year, which were only partially offset by lower sales volumes and inefficiencies caused by operating certain facilities at levels below their designed manufacturing capacities.
The Company's cost of sales decreased in the 2004 fiscal year compared to the prior fiscal year due to personnel reductions and cost savings resulting from the Company's realignment of its North American FR-4 business, other cost reduction measures implemented by the Company, including workforce reductions and the reduction of overtime, and lower production volumes during the first and second quarters of the 2004 fiscal year. In addition, the Company continued to implement an annual salary freeze for significant numbers of salaried employees, especially senior management employees, and paid no performance bonuses or significantly reduced bonuses and other incentives.
Selling, general and administrative expenses increased slightly during the 2004 fiscal year compared with the 2003 fiscal year, and these expenses, measured as a percentage of sales, were 14.4% during the 2004 fiscal year compared with 13.9% during the 2003 fiscal year. The slight increase in selling, general and administrative expenses in the 2004 fiscal year was a result of increased shipping costs incurred by the Company to meet its customers' customized manufacturing and quick-turn- around requirements.
The Company recorded a pre-tax gain of $0.4 million in the 2004 fiscal year third quarter resulting from the sale of real estate in Skelmersdale, England previously used by its Nelco UK subsidiary, which ceased operations after its closure in the 2003 fiscal year third quarter, and a pre-tax gain of $33.1 million during the 2004 fiscal year second quarter related to the payment by Delco Electronics Corporation of the judgment against Delco in favor of the Company's subsidiary, Nelco Technology, Inc., in its lawsuit against Delco. The Company also recorded pre-tax charges totaling $8.5 million in the 2004 fiscal year first and second quarters in connection with the realignment of its North American FR-4 business operations and related workforce reductions. The net pre-tax gain for all these items for the 2004 fiscal year was $25.0 million, and the net after-tax gain for the fiscal year was $22.9 million.
In the 2003 fiscal year fourth quarter, the Company recorded pre-tax, fixed asset impairment charges of $49.0 million related to the write-downs of fixed assets at continuing operations in North America, which the Company announced in its 2004 fiscal year first quarter. The after-tax impact of these fixed asset impairments was $44.6 million. In addition, the Company recorded pre-tax charges totaling $4.8 million in the 2003 fiscal year third quarter related to the closure of its Nelco U.K. manufacturing facility and severance costs at a North American business unit and a pre-tax gain of $3.2 million in the 2003 fiscal year second quarter in connection with the sale of DPI on June 27, 2002 for $5.0 million in cash. The net pre-tax charge for all these items for the 2003 fiscal year was $50.7 million, and the net after-tax charge for the fiscal year was $47.5 million.
For the reasons set forth above, earnings from continuing operations were $29.8 million for the 2004 fiscal year, including the pre-tax gains described above resulting from the sale of real estate in England and the payment by Delco Electronics Corporation of the judgment against it in favor of the Company's subsidiary, Nelco Technology, Inc., in Nelco's lawsuit against Delco and the pre-tax charges described above related to the realignment of the Company's North American FR-4 business operations and related workforce reductions. This compares with a loss from continuing operations of $51.2 million for the 2003 fiscal year, including the pre-tax charges described above related to the write-downs of fixed assets at continuing operations in North America, the closure of the Nelco U.K. manufacturing facility and severance costs at a North American business unit and the pre-tax gain described above related to the sale of DPI. Excluding the pre-tax gains and the pre-tax charges described above, the Company reported income from continuing operations of $4.7 million for the 2004 fiscal year, compared with a loss of $0.5 million for the 2003 fiscal year.
Interest and other income, net, principally investment income, declined 9% to $3.0 million for the 2004 fiscal year from $3.3 million for the 2003 fiscal year. The decrease in investment income was attributable to lower prevailing interest rates during the 2004 fiscal year. The Company's investments were primarily short-term taxable instruments. The Company incurred no interest expense during the 2004, 2003 or 2002 fiscal years. See "Liquidity and Capital Resources" elsewhere in this Item 7.
The Company's effective income tax rate was 8.7% for the 2004 fiscal year compared to an income tax benefit of 8.4% for the 2003 fiscal year. The Company's effective income tax rate for continuing operations, excluding the pre-tax gains and the pre- tax charges described above, for the 2004 fiscal year was 8.6% compared with an income tax benefit of 30% for the 2003 fiscal year.
The Company's net earnings from continuing operations for the 2004 fiscal year were $29.9 million, including the gains described above resulting from the sale of real estate in England and the payment by Delco Electronics Corporation of the judgment in favor of the Company's subsidiary, Nelco Technology, Inc., and the charges described above related to the realignment of the Company's North American FR-4 business operations and related workforce reductions. This compares with a net loss of $43.9 million for the 2003 fiscal year, including the charges of $47.5 million described above related to the write-downs of fixed assets at continuing operations in North America, the closure of the Nelco U.K. manufacturing facility and severance costs at a North American business unit and the gain described above related to the sale of DPI. Excluding the gains and the charges described above, the Company reported net earnings from continuing operations of $7.0 million for the 2004 fiscal year, compared with net earnings from continuing operations of $3.6 million for the 2003 fiscal year.
For the reasons set forth above, the Company reported a net loss of $3.9 million for the 2004 fiscal year, including the gains and charges described above, and a net loss of $50.8 million for the 2003 fiscal year, including the gain and charges described above.
Basic and diluted earnings per share from continuing operations, including the gains and charges described above, were $1.51 and $1.50 per share, respectively, for the 2004 fiscal year compared to basic and diluted losses per share of $2.23, including the gain and charges described above, for the 2003 fiscal year. Excluding such gains and charges, the basic and diluted earnings per share were $0.36 and $0.35, respectively, for the 2004 fiscal year compared to basic and diluted earnings per share of $0.18 for the 2003 fiscal year.
The basic loss per share and the diluted loss per share were $0.20 and $0.19, respectively, for the 2004 fiscal year, including losses from the discontinued Dielektra operations of $1.71 and $1.69 per share, respectively, and the pre-tax gains and charges described above. This compares to basic and diluted losses per share of $2.58 for the 2003 fiscal year, including the basic and diluted loss from the discontinued Dielektra operations of $0.35 per share and the pre-tax gains and charges described above.
Fiscal Year 2003 Compared with Fiscal Year 2002:
The Company's continuing operations continued to be weak during the fiscal year ended March 2, 2003 as the North American, European and, to a lesser extent, Asian markets for sophisticated printed circuit materials continued to experience severely depressed conditions during the 2003 fiscal year.
Nevertheless, the Company's gross profit in the fiscal year ended March 2, 2003 was significantly more than the gross profit in the fiscal year ended March 3, 2002 as a result of the company's reductions of its costs and expenses and higher percentages of sales of higher technology, higher margin products.
In addition to its depressed financial results of operations, the Company recorded pre-tax, fixed asset impairment charges of $49.0 million in the 2003 fiscal year fourth quarter related to the writedowns of fixed assets at its continuing operations in North America. The Company also recorded pre-tax charges of $4.8 million in the 2003 fiscal year third quarter in connection with the closure of its Nelco U.K. manufacturing facility in Skelmersdale, England and severance costs at a North American business unit and realized a pre-tax gain of $3.2 million in the 2003 fiscal year second quarter in connection with the sale of its DPI subsidiary.
In the 2002 fiscal year, the Company recorded pre-tax charges totaling $16.5 million related to the sale of the assets and business of NTI, the Company's wholly owned subsidiary that manufactured semi-finished printed circuit boards, commonly known as mass lamination, in Tempe, Arizona, the closure of a related support facility in Arizona and severance payments for workforce reductions at the Company's continuing operations.
As a result of the Company's discontinuation of its financial support of Dielektra in February 2004, the ensuing insolvency of Dielektra and the Company's treatment of Dielektra as a discontinued operation, the Company reclassified Dielektra's operating losses and charges and accordingly recorded a net loss from discontinued operations of $6.9 million in the 2003 fiscal year, comprised of $5.7 million of operating losses incurred by Dielektra and $1.2 million for after-tax fixed asset impairment charges, and the Company recorded a net loss from discontinued operations in the 2002 fiscal year of $8.1 million, comprised of $5.2 million of operating losses incurred by Dielektra and $2.9 million related to the realignment of the operations of Dielektra. In addition, the Company's sales from its continuing operations do not include sales by Dielektra of $21.2 million for the 2003 fiscal year and $28.4 million for the 2002 fiscal year.
The continuing low levels of sales of electronic materials were largely responsible for the Company's results of continuing operations for the fiscal year ended March 2, 2003. The North American and European markets for sophisticated printed circuits continued to be severely depressed during the 2003 fiscal year, and the Company's electronic materials operations located in those regions suffered as a result, although the Company believes it gained market share with certain of its electronic materials customers.
The Company's results of continuing operations and gross profit improved in the 2003 fiscal year compared to the 2002 fiscal year principally as a result of the electronic material business' reductions in costs and expenses despite the decrease in sales and the concomitant operation of the Company's facilities at levels far below their designed manufacturing capacities.
Operating results of the Company's advanced composite materials business also improved during the 2003 fiscal year primarily as a result of higher percentages of sales of higher margin products.
Results of Operations
Net sales from continuing operations for the fiscal year ended March 2, 2003 declined 3% to $195.6 million from $201.7 million for the fiscal year ended March 3, 2002. The decrease in net sales was principally the result of lower unit volumes of materials shipped by the Company's operations in North America, partially offset by higher unit volumes of materials shipped by the Company's operations in Asia and Europe. The comparative decrease in net sales was also influenced by the fact that the Company's net sales in the fiscal year ended March 3, 2002 benefited from significantly higher sales in March 2001 than in any subsequent month, as the downturn in the global electronics industry and in the Company's sales occurred in the 2002 fiscal year first quarter.
The Company's sales from continuing operations do not include sales by Dielektra of $21.2 million for the 2003 fiscal year and $28.4 million for the 2002 fiscal year.
The Company's foreign operations accounted for $77.7 million of sales, or 40% of the Company's total sales worldwide from continuing operations, during the 2003 fiscal year, compared with $69.2 million of sales, or 34% of total sales worldwide from continuing operations, during the 2002 fiscal year and 33% of total sales worldwide from continuing operations during the 2001 fiscal year. Sales by the Company's foreign operations during the 2003 fiscal year increased slightly from the 2002 fiscal year due to increases in sales in Asia while sales by the Company's operations in England declined during the 2003 fiscal year compared with the prior fiscal year.
The overall gross profit as a percentage of net sales for the Company's worldwide continuing operations improved to 13.6% during the 2003 fiscal year compared with 8.3% during the 2002 fiscal year. The improvement in the gross margin was attributable to the significant declines in costs and expenses from the 2002 fiscal year, production efficiencies resulting from enhanced manufacturing automation, and increases in market share with certain key electronic materials customers, which were only partially offset by lower sales volumes and inefficiencies caused by operating certain facilities at levels below their designed manufacturing capacities. Gross profit was also positively impacted by higher percentages of sales of higher technology, higher margin products, as high performance materials accounted for 84% of worldwide sales from continuing operations for the 2003 fiscal year compared with 78% for the prior fiscal year. The Company's cost of sales decreased significantly as a result of lower production volumes and cost reduction measures implemented by the Company, including significant workforce reductions and the reduction of overtime, and the Company continued to implement an annual salary freeze for significant numbers of salaried employees, especially senior management employees, and paid no performance bonuses or significantly reduced bonuses and other incentives.
Selling, general and administrative expenses declined by $6.5 million, or by 19%, during the 2003 fiscal year compared with the 2002 fiscal year, and these expenses, measured as a percentage of sales, were 13.9% during the 2003 fiscal year compared with 16.7% during the 2002 fiscal year. The decrease in selling, general and administrative expenses as a percentage of sales in the 2003 fiscal year was due to the sale of DPI, the closure of the Company's U.K. manufacturing facility in Skelmersdale, England and expense reduction measures implemented by the Company during the 2003 fiscal year.
In the 2003 fiscal year fourth quarter, the Company recorded pre-tax, fixed asset impairment charges of $49.0 million related to the writedowns of fixed assets at continuing operations in North America. The after-tax impact of these fixed asset impairments was $44.6 million. In addition, the Company recorded pre-tax charges totaling $4.8 million in the 2003 fiscal year third quarter related to the closure of its Nelco U.K. manufacturing facility and severance costs at a North American business unit and a pre-tax gain of $3.2 million in the 2003 fiscal year second quarter in connection with the sale of DPI on June 27, 2002 for $5.0 million in cash. The net pre-tax charge for all these items for the 2003 fiscal year was $50.7 million, and the net after-tax charge for the fiscal year was $47.5 million.
For the reasons set forth above, the loss from continuing operations was $51.2 million for the 2003 fiscal year, including the pre-tax charges described above related to the writedowns of fixed assets at continuing operations in North America, the closure of the Nelco U.K. manufacturing facility and severance costs at a North American business unit and the pre-tax gain described above related to the sale of DPI, compared with a loss from continuing operations of $33.5 million for the 2002 fiscal year, including the pre-tax charges described above related to a workforce reduction a business unit, the sale of NTI, the closure of a related support facility and severance for the lay-off of employees at the Company's continuing operations. The loss from continuing operations for the 2003 fiscal year, before the pre- tax items described above, was $0.5 million, compared with a loss from continuing operations of $17.0 million before the pre-tax charges described above for the 2002 fiscal year.
Interest and other income, net, principally investment income, declined 39% to $3.3 million for the 2003 fiscal year from $5.4 million for the 2002 fiscal year. The decrease in investment income was attributable to lower prevailing interest rates during the 2003 fiscal year. The Company's investments were primarily short-term taxable instruments. The Company incurred no interest expense during the 2003 or 2002 fiscal years. See "Liquidity and Capital Resources" elsewhere in this Item 7.
The Company's effective income tax rate was a benefit of 8.4% for the 2003 fiscal year compared to a benefit of 38.1% for the 2002 fiscal year. This decrease in the effective tax rate benefit was the result of a valuation allowance on the tax benefit from losses sustained in the 2003 fiscal year that will be carried forward to future years for tax purposes. The valuation allowance eliminated the current recognition of the tax benefit from the tax loss carryforward due to the uncertainty of the use of such benefit.
The loss from continuing operations for the 2003 fiscal year, including the after-tax charges of $47.5 million described above related to the write-downs of fixed assets at continuing operations in North America, the closure of the Nelco U.K. manufacturing facility and severance costs at a North American business unit, was $43.9 million, compared to a loss from continuing operations of $17.4 million for the 2002 fiscal year, including the pre-tax charges described above related to a workforce reduction at a business unit, the sale of NTI, the closure of a related support facility and severance for the lay- off of employees at the Company's continuing operations.
Basic and diluted losses per share for the 2003 fiscal year were $2.58, including losses from the discontinued Dielektra operations of $0.35 and the pre-tax charges and gain described above, compared to losses per share of $1.31, including losses from the discontinued Dielektra operations of $0.42 and the pre- tax charges described above, for the 2002 fiscal year. Basic and diluted losses per share from continuing operations for the 2003 fiscal year, including the pre-tax charges and gain described above, were $2.23 compared to basic and diluted losses per share from continuing operations for the 2002 fiscal year, including the pre-tax charges described above, of $0.89, and basic and diluted losses per share, excluding the pre-tax charges and gain described above, were $0.18 for the 2003 fiscal year, compared to losses of $0.35 for the 2002 fiscal year, excluding the pre-tax charges described above.
Liquidity and Capital Resources:
At February 29, 2004, the Company's cash and temporary investments were $189.2 million compared with $162.9 million at March 2, 2003, the end of the Company's 2003 fiscal year. The increase in the Company's cash and investment position at February 29, 2004 was attributable to cash received from Delco Electronics Corporation in payment of the judgment in favor of the Company's subsidiary, Nelco Technology, Inc., in its lawsuit against Delco, partially offset by purchases of property, plant and equipment and the payment of dividends. The Company's working capital (which includes cash and temporary investments) was $197.5 million at February 29, 2004 compared with $170.3 million at March 2, 2003. The increase in working capital at February 29, 2004 compared with March 2, 2003 was due principally to higher cash and cash equivalents and higher accounts receivable, offset in part by lower inventories and other current assets and higher accrued liabilities. The increase in accounts receivable at February 29, 2004 compared with March 2, 2003 was a result principally of higher sales in the fiscal year 2004 fourth quarter than in the fiscal year 2003 fourth quarter. The Company's current ratio (the ratio of current assets to current liabilities) was 5.6 to 1 at February 29, 2004 compared with 5.2 to 1 at March 2, 2003.
During the 2004 fiscal year, $32.3 million of cash provided by the Company's operating activities included $6.9 million paid as severance in connection with workforce reductions and $33.1 million that the Company received on July 1, 2003 from Delco Electronics Corporation in settlement of the lawsuit by the Company's subsidiary, Nelco Technology, Inc., against Delco. See Notes 13 and 19 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Report and Item 3 of Part I of this Report for additional information regarding the lawsuit. Net expenditures for property, plant and equipment were $2.4 million, $6.4 million and $22.8 million in the 2004, 2003 and 2002 fiscal years, respectively.
The Company sold its DPI subsidiary on June 27, 2002 for $5.0 million in cash and recorded a pre-tax gain of $3.2 million in the 2003 fiscal year second quarter in connection with the sale.
At February 29, 2004 and March 2, 2003, the Company had no long-term debt.
The Company believes its financial resources will be sufficient, for the foreseeable future, to provide for continued investment in working capital and property, plant and equipment and for general corporate purposes. Such resources would also be available for purchases of the Company's common stock, appropriate acquisitions and other expansions of the Company's business.
The Company is not aware of any circumstances or events that are reasonably likely to occur that could materially affect its liquidity.
The Company's contractual obligations and other commercial commitments to make future payments under contracts, such as lease agreements, consist only of the operating lease commitments described in Note 15 of the Notes to Consolidated Financial Statements included elsewhere in this Report. The Company has no long-term debt, capital lease obligations, unconditional purchase obligations or other long-term obligations, standby letters of credit, guarantees, standby repurchase obligations or other commercial commitments or contingent commitments, other than two standby letters of credit in the total amount of $2.7 million to secure the Company's obligations under its workers' compensation insurance program.
As of February 29, 2004, the Company's significant contractual obligations, including payments due by fiscal year, were as follows:
Contractual Obligations
(Amounts in thousands) Total 2005 2006- 2008- 2010 and
2007 2009 thereafter
Operating lease
obligations $10,033 $2,097 $2,252 $1,530 $4,154
Purchase obligations 183 183 - - -
Total $10,216 $2,280 $2,252 $1,530 $4,154
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Off-Balance Sheet Arrangements:
The Company's liquidity is not dependent on the use of, and the Company is not engaged in, any off-balance sheet financing arrangements, such as securitization of receivables or obtaining access to assets through special purpose entities.
Environmental Matters:
The Company is subject to various federal, state and local government requirements relating to the protection of the environment. The Company believes that, as a general matter, its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and that its handling, manufacture, use and disposal of hazardous or toxic substances are in accord with environmental laws and regulations. However, mainly because of past operations and operations of predecessor companies, which were generally in compliance with applicable laws at the time of the operations in question, the Company, like other companies engaged in similar businesses, is a party to claims by government agencies and third parties and has incurred remedial response and voluntary cleanup costs associated with environmental matters. Additional claims and costs involving past environmental matters may continue to arise in the future. It is the Company's policy to record appropriate liabilities for such matters when remedial efforts are probable and the costs can be reasonably estimated.
In the 2004, 2003 and 2002 fiscal years, the Company charged approximately $0.0 million, $0.1 million and $0.2 million, respectively, against pre-tax income for remedial response and voluntary cleanup costs (including legal fees). While annual expenditures have generally been constant from year to year, and may increase over time, the Company expects it will be able to fund such expenditures from cash flow from operations. The timing of expenditures depends on a number of factors, including regulatory approval of cleanup projects, remedial techniques to be utilized and agreements with other parties. At February 29, 2004, the recorded liability in liabilities from discontinued operations for environmental matters related to Dielektra was $2.1 million and the recorded liability in accrued liabilities for environmental matters was $2.4 million compared with a total record liability in accrued liabilities for environmental matters of $4.2 million at March 2, 2003.
Management does not expect that environmental matters will have a material adverse effect on the liquidity, capital resources, business or consolidated financial position of the Company. See Note 15 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of this Report for a discussion of the Company's commitments and contingencies, includ ing those related to environmental matters.
Critical Accounting Policies and Estimates:
In response to financial reporting release, FR- 60,"Cautionary Advice Regarding Disclosure About Critical Accounting Policies", issued by the Securities and Exchange Commission in December 2001, the following information is provided regarding critical accounting policies that are important to the Consolidated Financial Statements and that entail, to a significant extent, the use of estimates, assumptions and the application of management's judgment.
General
The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent liabilities. On an on-going basis, the Company evaluates its estimates, including those related to sales allowances, bad debts, inventories, valuation of long-lived assets, income taxes, restructuring, pensions and other employee benefit programs, and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
Sales Allowances
The Company provides for the estimated costs of sales allowances at the time such costs can be reasonably estimated. The Company is focused on manufacturing the highest quality electronic materials and other products possible and employs stringent manufacturing process controls and works with raw material suppliers who have dedicated themselves to complying with the Company's specifications and technical requirements. However, if the quality of the Company's products declined, the Company may incur higher sales allowances.
Bad Debt
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Inventory
The Company writes down its inventory for estimated obsolescence or unmarketability based upon the age of the inventory and assumptions about future demand for the Company's products and market conditions.
Valuation of Long-lived Assets
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Important factors that could trigger an impairment review include, but are not limited to, significant negative industry or economic trends and significant changes in the use of the Company's assets or strategy of the overall business.
Income Taxes
Carrying value of the Company's net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If these estimates and assumptions change in the future, the Company may be required to record additional valuation allowances against its deferred tax assets resulting in additional income tax expense in the Company's consolidated statement of operations. Management evaluates the realizability of the deferred tax assets quarterly and assesses the need for additional valuation allowances quarterly.
Restructuring
During the fiscal years ended February 29, 2004 and March 2, 2003, the Company recorded significant charges in connection with the realignment of its North American FR-4 business operations, the closures of the mass lamination operation of Dielektra GmbH in Germany and the Company's manufacturing facility in England and employee severance costs; and during the fiscal year ended March 3, 2002, the Company recorded significant charges in connection with the restructuring relating to the sale of Nelco Technology, Inc., the closure of a related support facility and the realignment of Dielektra, GmbH. These charges include estimates pertaining to employee separation costs and the settlements of contractual obligations resulting from the Company's actions. Although the Company does not anticipate significant changes, the actual costs incurred by the Company may differ from these estimates.
Contingencies and Litigation
The Company is subject to a small number of proceedings, lawsuits and other claims related to environmental, employment, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes in these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies is made after careful analysis of each individual issue. The required reserves may change in the future due to new developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.
Pension and Other Employee Benefit Programs
Dielektra has significant pension costs that are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates and wage inflation rates. The Company is required to consider current market conditions, including changes in interest rates and wage costs, in selecting these assumptions. Changes in the related pension costs may occur in the future in addition to changes resulting from fluctuations in the Company's related headcount due to changes in the assumptions.
The Company's obligations for workers' compensation claims and employee-health care benefits are effectively self-insured. The Company uses an insurance company administrator to process all such claims and benefits. The Company accrues its workers' compensation liability based upon the claim reserves established by the third-party administrator and historical experience. The Company's employee health insurance benefit liability is based on its historical claims experience.
The Company and certain of its subsidiaries have a non- contributory profit sharing retirement plan covering their regular full-time employees. In addition, the Company's subsidiaries have various bonus and incentive compensation programs, most of which are determined at management's discretion.
The Company's reserves associated with these self-insured liabilities and benefit programs are reviewed by management for adequacy at the end of each quarterly reporting period.
Factors That May Affect Future Results.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about their companies without fear of litigation so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statement. Certain portions of this Report which do not relate to historical financial information may be deemed to constitute forward-looking statements that are subject to various factors which could cause actual results to differ materially from Park's expectations or from results which might be projected, forecasted, estimated or budgeted by the Company in forward-looking statements. Accordingly, the Company hereby identifies the following important factors which could cause the Company's actual results to differ materially from any such results which might be projected, forecast, estimated or budgeted by the Company in forward-looking statements.
. The Company's customer base is concentrated, in part, because the Company's business strategy has been to develop long-term relationships with a select group of customers. During the Company's fiscal year ended February 29, 2004, the Company's ten largest customers accounted for approximately 71% of net sales. The Company expects that sales to a relatively small number of customers will continue to account for a significant portion of its net sales for the foreseeable future. A loss of one or more of such key customers could affect the Company's profitability. See "Business-Electronic Materials Operations-Customers and End Markets" in Item 1 of Part I of this Report, "Legal Proceedings" in Item 3 of Part I of this Report and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of this Report for discussions of the loss of a key customer early in the 1999 fiscal year.
. The Company's business is dependent on certain aspects of the electronics industry, which is a cyclical industry and which has experienced recurring downturns. The downturns, such as occurred in the first quarter of the Company's fiscal year ended March 2, 1997 and in the first quarter of the Company's fiscal year ended March 3, 2002, and which continues to a lesser extent at the present time, can be unexpected and have often reduced demand for, and prices of, electronic materials.
. The Company's operating results are affected by a number of factors, including various factors beyond the Company's control. Such factors include economic conditions in the electronics industry, the timing of customer orders, product prices, process yields, the mix of products sold and maintenance-related shutdowns of facilities. Operating results also can be influenced by development and intro duction of new products and the costs associated with the start-up of new facilities.
. The Company's production processes require the use of substantial amounts of gas and electricity, the cost and available supply of which are beyond the control of the Company. Changes in the cost or availability of gas or electricity could materially increase the Company's cost of operations.
. Rapid technological advances in semiconductors and elec tronic equipment have placed rigorous demands on the elec tronic materials manufactured by the Company and used in printed circuit board production. The Company's operating results will be affected by the Company's ability to main tain and increase its technological and manufacturing capability and expertise in this rapidly changing industry.
. The electronic materials industry is intensely competitive and the Company competes worldwide in the market for materials used in the production of complex multilayer printed circuit boards. The Company's principal competitors are substantially larger and have greater financial resources than the Company, and the Company's operating results will be affected by its ability to maintain its competitive position in the industry.
. There are a limited number of qualified suppliers of the principal materials used by the Company in its manufacture of electronic materials products. Substitutes for these products are not readily available, and in the past there have been shortages in the market for certain of these materials.
. The Company typically does not obtain long-term purchase orders or commitments. Instead, it relies primarily on continual communication with its customers to anticipate the future volume of purchase orders. A variety of condi tions, both specific to the individual customer and gener ally affecting the customer's industry, can cause a customer to reduce or delay orders previously anticipated by the Company.
. The Company, from time to time, is engaged in the expan sion of certain of its manufacturing facilities for elec tronic materials. The anticipated costs of such expansions cannot be determined with precision and may vary materially from those budgeted. In addition, such expansions will increase the Company's fixed costs. The Company's future profitability depends upon its ability to utilize its manufacturing capacity in an effective manner.
. The Company's business is capital intensive and, in addition, the introduction of new technologies could substan tially increase the Company's capital expenditures. In order to remain competitive the Company must continue to make significant investments in capital equipment and expansion of operations.
. The Company may acquire businesses, product lines or technologies that expand or complement those of the Company. The integration and management of an acquired company or business may strain the Company's management resources and technical, financial and operating systems. In addition, implementation of acquisitions can result in large one-time charges and costs. A given acquisition, if consummated, may materially affect the Company's business, financial condition and results of operations.
. The Company's international operations are subject to various risks, including unexpected changes in regulatory requirements, exchange rates, tariffs and other barriers, political and economic instability, potentially adverse tax consequences, any impact on economic and financial conditions around the world resulting from geopolitical conflicts or acts of terrorism and the impact that severe acute respiratory syndrome ("SARS") may have on the Company's business and the economies of the countries in which the Company operates.
. A portion of the sales and costs of the Company's international operations are denominated in currencies other than the U.S. dollar and may be affected by fluctuations in currency exchange rates.
. The Company's success is dependent upon its relationship with key management and technical personnel.
. The Company's future success depends in part upon its intellectual property which the Company seeks to protect through a combination of contract provisions, trade secret protections, copyrights and patents.
. The Company's production processes require the use, storage, treatment and disposal of certain materials which are considered hazardous under applicable environmental laws and the Company is subject to a variety of regulatory requirements relating to the handling of such materials and the release of emissions and effluents into the environment. Other possible developments, such as the enactment or adoption of additional environmental laws, could result in substantial costs to the Company.
. The market price of the Company's securities can be subject to fluctuations in response to quarter to quarter variations in operating results, changes in analysts' earnings estimates, market conditions in the electronic materials industry, as well as general economic conditions and other factors external to the Company.
. The Company's results could be affected by changes in the Company's accounting policies and practices or changes in the Company's organization, compensation and benefit plans, or changes in the Company's material agreements or understandings with third parties.
Item 7A.Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risks for changes in foreign currency exchange rates and interest rates. The Company's primary foreign currency exchange exposure relates to the translation of the financial statements of foreign subsidiaries using currencies other than the U.S. dollar as their functional currency. The Company does not believe that a 10% fluctuation in foreign exchange rates would have had a material impact on its consolidated results of operations or financial position. The exposure to market risks for changes in interest rates relates to the Company's short-term investment portfolio. This investment portfolio is managed in accordance with guidelines issued by the Company. These guidelines are designed to establish a high quality fixed income portfolio of government and highly rated corporate debt securities with a maximum weighted maturity of less than one year. The Company does not use derivative financial instruments in its investment portfolio. Based on the average maturity of the investment portfolio at the end of the 2004 fiscal year, a 10% increase in short-term interest rates would not have had a material impact on the consolidated results of operations or financial position of the Company.
Item 8. Financial Statements and Supplementary Data.
The Company's Financial Statements begin on the next page.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Park Electrochemical Corp.
Lake Success, New York
We have audited the accompanying consolidated balance sheets of Park Electrochemical Corp. and subsidiaries as of February 29, 2004 and March 2, 2003 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended February 29, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Park Electrochemical Corp. and subsidiaries as of February 29, 2004 and March 2, 2003 and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 29, 2004, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
April 21, 2004
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
February 29, March 2,
2004 2003
ASSETS
Current assets:
Cash and cash equivalents $129,989 $111,036
Marketable securities (Note 2) 59,197 51,899
Accounts receivable, less
allowance for doubtful accounts
of $1,845 and $1,893, respectively 36,149 30,272
Inventories (Note 3) 11,707 12,688
Prepaid expenses and other 3,040 4,690
Total current assets 240,082 210,585
Property, plant and equipment, net
of accumulated depreciation and
amortization (Notes 4, 9, and 11) 70,569 90,503
Other assets 419 454
Total assets $311,070 $301,542
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,913 $ 15,145
Accrued liabilities (Note 5) 24,468 21,790
Income taxes payable 3,248 3,376
Total current liabilities 42,629 40,311
Deferred income taxes (Note 6) 5,107 4,539
Deferred pension liability (Note 9
and 14) - 10,991
Liabilities from discontinued
operations (Note 9) 19,438 -
Total liabilities 67,174 55,841
Commitments and contingencies (Note 15)
Stockholders' equity (Note 7):
Preferred stock, $1 par value per
share-authorized, 500,000 shares;
issued, none - -
Common stock, $.10 par value per
share-authorized, 60,000,000
shares; issued, 20,369,986 shares 2,037 2,037
Additional paid-in capital 133,335 133,172
Retained earnings 108,915 117,506
Accumulated other non-owner changes 3,734 (2,432)
248,021 250,283
Less treasury stock, at cost, 582,061
and 686,069 shares, respectively (4,125) (4,582)
Total stockholders' equity 243,896 245,701
Total liabilities and
stockholders' equity $311,070 $301,542
See notes to consolidated financial statements.
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PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Fiscal Year Ended
February 29, March 2, March 3,
2004 2003 2002
Net sales $194,236 $195,578 $201,681
Cost of sales 161,536 168,921 185,014
Gross profit 32,700 26,657 16,667
Selling, general and
administrative expenses 27,962 27,157 33,668
Gain on Delco lawsuit (Note 19) (33,088) - -
Asset impairment charge (Note 11) - 49,035 -
Restructuring and severance
charges (Note 10) 8,469 4,794 806
Gain on sale of DPI (Note 12) - (3,170) -
Gain on sale of United
Kingdom real estate (429) - -
Loss on sale of NTI and closure
of related support facility (Note 13) - - 15,707
Earnings (loss) from
continuing operations 29,786 (51,159) (33,514)
Interest and other income, net 2,958 3,260 5,373
Earnings (loss) from continuing
operations before income taxes 32,744 (47,899) (28,141)
Income tax provision (benefit)
from continuing operations 2,835 (4,035) (10,727)
Earnings (loss) from
continuing operations 29,909 (43,864) (17,414)
Loss from discontinued
operations, net of taxes (Note 9) (33,761) (6,895) (8,105)
Net loss $(3,852) $(50,759) $(25,519)
Basic earnings (loss) per share:
Earnings (loss) from
continuing operations $ 1.51 $(2.23) $(0.89)
Loss from discontinued
operations, net of tax (1.71) (0.35) (0.42)
Basic loss per share $(0.20) $(2.58) $(1.31)
Diluted earnings (loss) per share:
Earnings (loss) from
continuing operations $ 1.50 $ (2.23) $(0.89)
Loss from discontinued
operations, net of tax (1.69) (0.35) (0.42)
Diluted loss per share $(0.19) $ (2.58) $(1.31)
See notes to consolidated financial statements.
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Part 1 of table
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
Accumulated
Additional Other
Common Paid-in Retained Non-Owner
Stock Capital Earnings Changes
Shares Amount
Balance, February 25, 2001 20,369,986 $2,037 $ 57,318 $203,150 $(5,764)
Net loss (25,519)
Exchange rate changes (1,257)
Change in pension
liability adjustment (802)
Market revaluation (67)
Conversion of long-term
debt 72,634
Stock option activity 1,186
Purchase of treasury stock
Cash dividends ($.24
per share) (4,678)
Comprehensive loss
Balance, March 3, 2002 20,369,986 2,037 131,138 172,953 (7,890)
Net loss (50,759)
Exchange rate changes 5,174
Change in pension
liability adjustment 103
Market revaluation 181
Stock option activity 2,034
Cash dividends ($.24
per share) (4,688)
Comprehensive loss
Balance, March 2, 2003 20,369,986 2,037 133,172 117,506 (2,432)
Net loss (3,852)
Exchange rate changes 5,557
Change in pension
liability adjustment 742
Market revaluation (133)
Stock option activity 163
Cash dividends ($.24
per share) (4,739)
Comprehensive loss
Balance, February 29, 2004 20,369,986 $2,037 $133,335 $108,915 $3,734
See notes to consolidated financial statements.
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Part 2 of table
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)
Treasury Stock Comprehensive
Shares Amount Income
Balance, February 25, 2001 4,441,359 $(27,835)
Net loss $(25,519)
Exchange rate changes (1,257)
Change in pension
liability adjustment (802)
Market revaluation (67)
Conversion of long-term
debt (3,411,204) 21,381
Stock option activity (162,830) 1,027
Purchase of treasury stock 9,838 (265)
Cash dividends ($.24
per share)
Comprehensive loss $(27,645)
Balance, March 3, 2002 877,163 (5,692)
Net loss $(50,759)
Exchange rate changes 5,174
Change in pension
liability adjustment 103
Market revaluation 181
Stock option activity (191,094) 1,110
Cash dividends ($.24
per share)
Comprehensive loss $(45,301)
Balance, March 2, 2003 686,069 (4,582)
Net loss (3,852)
Exchange rate changes 5,557
Change in pension
liability adjustment 742
Market revaluation (133)
Stock option activity (104,008) 457
Cash dividends ($.24
per share)
Comprehensive loss $ 2,314
Balance, February 29, 2004 582,061 $ (4,125)
See notes to consolidated financial statements
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PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year Ended
February 29, March 2, March 3,
2004 2003 2002
Cash flows from operating activities:
Net loss $(3,852) $(50,759) $(25,519)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 11,978 17,973 16,257
(Gain)loss on sale of fixed assets (511) - 10,636
Charge for impairment of fixed assets - 50,255 2,959
Non-cash restructuring charges - 2,150 -
Non-cash charges related to
discontinued operations 21,348 - -
Gain on sale of DPI - (3,170) -
Provision for doubtful accounts
receivable 109 184 123
Provision for deferred income taxes 515 (1,541) (4,690)
Other, net - (25) (63)
Changes in operating assets and
liabilities:
Accounts receivable (6,082) 3,478 36,907
Inventories 86 535 18,793
Prepaid expenses and other current assets 1,287 (719) 4,511
Other assets and liabilities (57) 17 29
Accounts payable 2,851 430 (13,617)
Accrued liabilities 4,441 (6,835) (9,744)
Income taxes payable 217 4,216 (13,176)
Net cash provided by operating
activities 32,330 16,189 23,406
Cash flows from investing activities:
Purchases of property, plant and
equipment (4,509) (6,468) (25,786)
Proceeds from sale of business - 5,000 -
Proceeds from sales of property,
plant and equipment 2,094 25 2,986
Purchases of marketable securities (76,530) (66,194) (47,355)
Proceeds from sales and maturities
of marketable securities 69,316 66,104 27,036
Net cash used in investing activities (9,629) (1,533) (43,119)
Cash flows from financing activities:
Redemption of long term debt - - (1,738)
Dividends paid (4,739) (4,688) (4,678)
Proceeds from exercise of stock options 620 368 1,959
Net cash used in financing activities (4,119) (4,320) (4,457)
Effect of exchange rate changes on
cash and cash equivalents 371 1,208 (64)
Increase (decrease) in cash and cash
equivalents 18,953 11,544 (24,234)
Cash and cash equivalents, beginning of year 111,036 99,492 123,726
Cash and cash equivalents, end of year $129,989 $111,036 $ 99,492
See notes to consolidated financial statements.
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PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three years ended February 29, 2004
(in thousands, except shares, per share data and option data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Park Electrochemical Corp. ("Park"), through its subsidiaries (collectively, the "Company"), is a leading global designer and producer of advanced electronic materials used to fabricate complex multilayer printed circuit boards and other electronic interconnection systems. The Company's multilayer printed circuit board materials include copper-clad laminates and prepregs. Multilayer printed circuit boards and interconnection systems are used in virtually all advanced electronic equipment to direct, sequence and control electronic signals between semiconductor devices and passive components. The Company also designs and manufactures advanced composite materials for the electronics, aerospace and industrial markets.
a. Principles of Consolidation - The consolidated
financial statements include the accounts of Park and
its subsidiaries. All significant intercompany balances
and transactions have been eliminated.
b. Use of Estimates - The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the amounts
reported in the financial statements and accompanying
notes. Actual results may differ from those estimates.
See "Critical Accounting Policies and Estimates" under
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item 7 of Part
II of this Report.
c. Accounting Period - The Company's fiscal year is the 52
or 53 week period ending the Sunday nearest to the last
day of February. The 2004, 2003 and 2002 fiscal years
ended on February 29, 2004, March 2, 2003, and March 3,
2002 respectively. Fiscal years 2004 and 2003 consisted
of 52 weeks and fiscal year 2002 consisted of 53 weeks.
d. Marketable Securities - All marketable securities are
classified as available-for-sale and are carried at
fair value, with the unrealized gains and losses, net
of tax, included in comprehensive income. Realized
gains and losses, amortization of premiums and
discounts, and interest and dividend income are
included in other income. The cost of securities sold
is based on the specific identification method.
e. Inventories - Inventories are stated at the lower of
cost (first-in, first-out method) or market.
f. Revenue Recognition - Revenues are recognized at the time
product is shipped to the customer.
g. Product Warranties - The Company accrues for defective
products at the time the existence of the defect is known
and the amount is reasonably determinable. The Company's
products are made to specific customer order specifications,
and there are no future performance requirements for the
Company's products other than the products' meeting the
agreed specifications. The amounts of returns and allowances
resulting from defective or damaged products have been
approximately 1.0% of sales for each of the Company's last
three fiscal years.
h. Shipping Costs - The amounts paid to third-party shippers
for transporting products to customers are classified as
selling expenses. The amounts included in selling, general
and administrative expenses were approximately $5,296,
$4,200 and $3,498 for fiscal years 2004, 2003 and 2002,
respectively.
i. Depreciation and Amortization - Depreciation and
amortization are computed principally by the straight-
line method over the estimated useful lives of the
related assets or, with respect to leasehold
improvements, the terms of the leases, if shorter.
j. Income Taxes - Deferred income taxes are provided for
temporary differences in the reporting of certain
items, primarily depreciation, for income tax purposes
as compared with financial accounting purposes.
United States ("U.S.") Federal income taxes have not
been provided on the undistributed earnings
(approximately $119,200 at February 29, 2004) of the
Company's foreign subsidiaries, because it is
management's practice and intent to reinvest such
earnings in the operations of such subsidiaries.
k. Foreign Currency Translation - Assets and liabilities
of foreign subsidiaries using currencies other than the
U.S. dollar as their functional currency are translated
into U.S. dollars at fiscal year-end exchange rates,
and income and expense items are translated at average
exchange rates for the period. Gains and losses
resulting from translation are recorded as currency
translation adjustments in comprehensive income.
The Company enters into foreign currency exchange
contracts to manage its exposure to currency rate
fluctuations on anticipated sales, purchases and inter-
company transactions. These types of exchange contracts
generally qualify for accounting as designated hedges.
The realized and unrealized gains and losses on
qualified contracts are deferred and included as
components of the related transactions. Any contracts
that do not qualify as hedges for accounting purposes
are marked to market with the resulting gains and
losses recognized in other income or expense.
l. Consolidated Statements of Cash Flows - The Company
considers all money market securities and investments
with maturities at the date of purchase of 90 days or
less to be cash equivalents.
Supplemental cash flow information:
Fiscal Year
2004 2003 2002
Cash paid during the year for:
Interest $ - $ - $2,700
Income taxes paid (refunded) 2,248 (6,278) 6,847
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m. Stock based Compensation - The Company implemented the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", in the fourth quarter of fiscal year 2003. This statement amended the disclosure provisions of FASB Statement No. 123, "Accounting for Stock Based Compensation", to require prominent disclosure of the effect on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation and amended APB Opinion No. 28, "Interim Financial Reporting", to require disclosure of those effects in interim financial information.
As of February 29, 2004, the Company had two fixed stock incentive plans which are more fully described in Note 7. All options under the stock plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The Company continues to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related interpretations for the plans. If compensation costs of the grants had been determined based upon the fair market value at the grant dates consistent with the FASB No. 123 "Accounting for Stock-Based Compensation", the Company's net (loss) income and (loss) earnings per share would have approximated the amounts shown below.
The weighted averaged fair value for options was
estimated at the dates of grants using the Black-Scholes
option-pricing model to be $8.69 for fiscal year 2004,
$12.81 for fiscal year 2003 and $8.09 for fiscal year
2002, with the following weighted average assumptions:
risk free interest rate of 4.0% for fiscal years 2004,
2003 and 2002; expected volatility factors of 49%-54%,
58% and 41% for fiscal years 2004, 2003 and 2002,
respectively; expected dividend yield of 1.0% for fiscal
years 2004, 2003 and 2002; and estimated option lives of
4.0 years for fiscal years 2004, 2003 and 2002.
2004 2003 2002
Net loss $(3,852) $(50,759) $(25,519)
Deduct: Total stock-based
employee compensation
determined under fair value
based method for all awards,
net of tax effects (1,846) (1,928) (1,404)
Pro forma net loss $(5,698) $(52,687) $(26,923)
EPS-basic as reported $ (0.20) $ (2.58) $ (1.31)
EPS-basic pro forma $ (0.29) $ (2.68) $ (1.38)
EPS-diluted as reported $ (0.19) $ (2.58) $ (1.31)
EPS-diluted pro forma $ (0.29) $ (2.68) $ (1.38)
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2. MARKETABLE SECURITIES
The following is a summary of available-for-sale securities:
Gross Gross Estimated
Unrealized Unrealized Fair
Amortized Cost Gains Losses Value
February 29, 2004:
U.S. Treasury and other
government securities $55,993 $ 116 $ 18 $56,091
U.S. corporate debt
securities 3,022 8 - 3,030
Total debt securities 59,015 124 18 59,121
Equity securities 5 71 - 76
$59,020 $195 $ 18 $59,197
March 2, 2003:
U.S. Treasury and other
government securities $41,359 $ 256 $ 6 $41,609
U.S. corporate debt
securities 10,153 63 - 10,216
Total debt securities 51,512 319 6 51,825
Equity securities 5 69 - 74
$51,517 $388 $ 6 $51,899
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The gross realized gains on the sales of securities were $40, $6 and $0 for fiscal years 2004, 2003 and 2002, respectively, and the gross realized losses were $21, $17, and $60 for fiscal years 2004, 2003 and 2002, respectively.
The amortized cost and estimated fair value of the debt and marketable equity securities at February 29, 2004, by contractual maturity, are shown below:
Estimated
Fair
Cost Value
Due in one year or less $10,021 $10,030
Due after one year through five years 48,994 49,091
59,015 59,121
Equity securities 5 76
$59,020 $59,197
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3. INVENTORIES
February 29, March 2,
2004 2003
Raw materials $ 4,088 $ 4,072
Work-in-process 2,424 3,424
Finished goods 4,835 4,680
Manufacturing supplies 360 512
$11,707 $12,688
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4. PROPERTY, PLANT AND EQUIPMENT
February 29, March 2,
2004 2003
Land, buildings and improvements $ 31,591 $ 36,807
Machinery, equipment, furniture
and fixtures 135,309 146,363
166,900 183,170
Less accumulated depreciation
and amortization 96,331 92,667
$ 70,569 $ 90,503
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Depreciation and amortization expense, for continuing operations, relating to property, plant and equipment was $10,604, $16,535 and $14,880 for fiscal years 2004, 2003 and 2002, respectively. Pretax charges of $15,349, $52,248 and $2,959 were recorded in fiscal years 2004, 2003 and 2002, respectively, for the write-downs of abandoned or impaired operating equipment, including charges of $15,349, $1,220 and $901, respectively, related to Dielektra, to its estimated net realizable value (see Notes 10 and 11 below).
5. ACCRUED LIABILITIES
February 29, March 2,
2004 2003
Payroll and payroll related $ 3,650 $ 4,535
Taxes, other than income taxes 343 320
Employee benefits 2,194 1,660
Environmental reserve (Note 15) 2,389 4,246
Other 15,892 11,029
$24,468 $21,790
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6. INCOME TAXES
The income tax (benefit) provision for continuing operations
includes the following:
Fiscal Year
2004 2003 2002
Current:
Federal $ 467 $(3,806) $ (5,901)
State and local 125 385 18
Foreign 1,732 927 (154)
2,324 (2,494) (6,037)
Deferred:
Federal - (1,087) (4,345)
State and local (7) (107) (729)
Foreign 518 (347) 384
511 (1,541) (4,690)
$ 2,835 $(4,035) $(10,727)
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The Company's effective income tax rate differs from the statutory U.S. Federal income tax rate as a result of the following:
Fiscal Year
2004 2003 2002
Statutory U.S. Federal tax rate 35.0% 35.0% 35.0%
State and local taxes, net of
Federal benefit 0.3 (0.4) 1.6
Foreign tax rate differentials (11.9) 1.4 0.7
Valuation allowance 1.9 - -
Impairment of deferred
tax assets - (28.1) -
Other, net (16.6) 0.5 0.8
8.7% 8.4% 38.1%
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The Company had foreign net operating loss carry-forwards from continuing operations of approximately $15,700 and $12,700 in fiscal years 2004 and 2003, respectively. In fiscal years 2004 and 2003, the Company had net operating loss carry-forwards from discontinued operations of $76,400 and $59,600, respectively. Long-term deferred tax assets arising from these net operating loss carry-forwards from continuing operations were valued at $0 at February 29, 2004 and March 2, 2003, net of valuation reserves of approximately $6,347 and $5,221, respectively. Long-term deferred tax assets arising from these net operating loss carry-forwards from discontinued operations were valued at $0 at February 29, 2004 and March 2, 2003, net of valuation reserves of approximately $32,598 and $26,008, respectively. The income tax provision (benefit) for discontinued operations was $0, $150 and $(210) for fiscal years 2004, 2003 and 2002, respectively.
Approximately $702 of the foreign net operating loss carry- forwards expire in fiscal year 2005, $2,900 of the net operating loss carry-forwards expire in fiscal year 2025, and the remainder have no expiration.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At February 29, 2004 and March 2, 2003, the Company did not have any current deferred tax assets. Significant components of the Company's long-term deferred tax liabilities and assets as of February 29, 2004 and March 2, 2003 from continuing operations were as follows:
2004 2003
Deferred tax liabilities:
Depreciation $ 2,929 $ 4,539
Other, net 2,178 1,392
Total deferred tax liabilities 5,107 5,931
Deferred tax assets:
Impairment of fixed assets 9,210 11,657
Net operating loss carry-forwards 6,347 5,221
Other, net 6,007 3,224
Total deferred tax assets 21,564 20,102
Valuation allowance for deferred
tax assets (21,564) (18,710)
Net deferred tax assets - 1,392
Net deferred tax liabilitie s $ 5,107 $ 4,539
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7. STOCKHOLDERS' EQUITY
Stock Options - Under the 1992 Stock Option Plan approved by the Company's stockholders, directors and key employees may have been granted options to purchase shares of common stock of the Company exercisable at prices not less than the fair market value at the date of grant. Options became exercisable 25% one year from the date of grant, with an additional 25% exercisable each succeeding anniversary of the date of grant. Options to purchase a total of 2,625,000 shares of common stock were authorized for grant under such Plan. The authority to grant additional options under the Plan expired on March 24, 2002.
Under the 2002 Stock Option Plan approved by the Company's stockholders, directors and key employees may be granted options to purchase shares of common stock of the Company exercisable at prices not less than the fair market value at the date of grant. Options become exercisable 25% one year from the date of grant, with an additional 25% exercisable each succeeding anniversary of the date of the grant. Options to purchase a total of 900,000 shares of common stock were authorized for grant under such Plan.
Information with respect to options follows:
Range Weighted
of Average
Exercise Outstanding Exercise
Prices Options Price
Balance, February 25,2001 $ 3.67 - $43.63 1,358,152 $16.50
Granted 22.62 - 26.77 275,725 23.62
Exercised 3.67 - 23.96 (162,831) 13.06
Cancelled 3.67 - 43.63 (227,339) 21.92
Balance, March 3, 2002 $ 4.67 - $43.63 1,243,707 $ 9.56
Granted 14.12 - 29.05 231,800 28.04
Exercised 4.67 - 4.67 (43,398) 13.06
Cancelled 12.21 - 43.63 (66,747) 28.29
Balance, March 2, 2003 $ 4.92 - $43.63 1,365,362 $18.92
Granted 19.95 - 29.17 194,275 20.42
Exercised 4.92 - 24.08 (121,837) 8.18
Cancelled 14.12 - 43.63 (41,147) 23.95
Balance, February 29, 2004 $ 8.75 - $43.63 1,396,653 $19.91
Exercisable February 29, 2004 $ 8.75 - $43.63 878,202 $17.79
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The following table summarizes information concerning currently outstanding and exercisable options.
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Range of Options Contractual Exercise Options Exercise
Exercise Prices Outstanding Life in Years Price Exercisable Price
$ 8.75 - 9.99 65,175 .21 $ 8.75 65,175 $ 8.75
10.00 - 19.99 837.078 5.53 16.68 605,515 15.73
20.00 - 43.63 494,400 7.60 26.87 207,512 26.63
--------- -------
1,396,653 878,202
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Stock options available for future grant under the 2002 stock option plan at February 29, 2004 and March 2, 2003 were 705,725 and 885,000, respectively.
c. Stockholders' Rights Plan - On February 2, 1989, the Company adopted a stockholders' rights plan designed to protect stockholder interests in the event the Company is confronted with coercive or unfair takeover tactics. Under the terms of the plan, as amended on July 12, 1995, each share of the Company's common stock held of record on February 15, 1989 or issued thereafter received one right (subsequently adjusted to two thirds (2/3) of one right in connection with the Company's three-for-two stock split in the form of a stock dividend distributed November 8, 2000 to stockholders of record on October 20, 2000). In the event that a person has acquired, or has the right to acquire, 15% (25% in certain cases) or more of the then outstanding common stock of the Company (an "Acquiring Person") or tenders for 15% or more of the then outstanding common stock of the Company, such rights will become exercisable, unless the Board of Directors otherwise determines. Upon becoming exercisable as aforesaid, each right will entitle the holder thereof to purchase one one-hundredth of a share of Series A Preferred Stock for $75, subject to adjustment (the "Purchase Price"). In the event that any person becomes an Acquiring Person, each holder of an unexercised exercisable right, other than an Acquiring Person, shall have the right to purchase, at a price equal to the then current Purchase Price, such number of shares of the Company's common stock as shall equal the then current Purchase Price divided by 50% of the then market price per share of the Company's common stock. In addition, if after a person becomes an Acquiring Person, the Company engages in any of certain business combination transactions as specified in the plan, the Company will take all action to ensure that, and will not consummate any such business combination unless, each holder of an unexercised exercisable right, other than an Acquiring Person, shall have the right to purchase, at a price equal to the then current Purchase Price, such number of shares of common stock of the other party to the transaction for each right held by such holder as shall equal the then current Purchase Price divided by 50% of the then market price per share of such other party's common stock. The Company may redeem the rights for a nominal consideration at any time, and after any person becomes an Acquiring Person, but before any person becomes the beneficial owner of 50% or more of the outstanding common stock of the Company, the Company may exchange all or part of the rights for shares of the Company's common stock at a one-for-one exchange ratio. Unless redeemed, exchanged or exercised earlier, all rights expire on July 12, 2005.
d. Reserved Common Shares - At February 29, 2004, 2,102,378 shares of common stock were reserved for issuance upon exercise of stock options.
e. Accumulated Other Non-Owner Changes - Accumulated balances related to each component of other comprehensive income (loss) were as follows:
February 29, March 2,
2004 2003
Currency translation adjustment $3,619 $(1,938)
Pension liability adjustment - (742)
Unrealized gains on investments 115 248
Accumulated balance $3,734 $(2,432)
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8. (LOSS)/EARNINGS PER SHARE
The following table sets forth the calculation of basic and
diluted (loss)/earnings per share for the last three fiscal
years:
2004 2003 2002
Earnings (loss) from
continuing operations $29,909 $ (43,864) $ (17,414)
Loss from discontinued
operations (33,761) (6,895) (8,105)
Net loss $(3,852) $ (50,759) $ (25,519)
Weighted average common shares
outstanding for basic EPS 19,754,000 19,674,000 19,535,000
Net effect of dilutive options 237,000 * *
Weighted average shares
outstanding for diluted EPS 19,991,000 19,674,000 19,535,000
Basic earnings (loss) per share:
Earnings (loss) from
continuing operations $ 1.51 $(2.23) $(0.89)
Loss from discontinued
operations, net of tax $(1.71) $ (0.35) $(0.42)
Basic loss per share $(0.20) $(2.58) $(1.31)
Diluted earnings (loss) per share:
Earnings (loss) from
continuing operations $ 1.50 $ (2.23) $(0.89)
Loss from discontinued
operations, net of tax $(1.69) $ (0.35) $(0.42)
Diluted loss per share $(0.19) $ (2.58) $(1.31)
*For the fiscal years 2003 and 2002, the effect of employee stock
options was not considered because it was antidilutive.
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Common stock equivalents, which were not included in the computation of diluted loss per share because either the effect would have been antidilutive or the options' exercise prices were greater than the average market price of the common stock, were 151,585, 865,287, and 637,550 for the fiscal years 2004, 2003, 2002, respectively.
9. DISCONTINUED OPERATIONS
On February 4, 2004, the Company announced that it was discontinuing its financial support of its Dielektra GmbH ("Dielektra") subsidiary located in Cologne, Germany, due to the continued erosion of the European market for the Company's high technology products. Without Park's financial support, Dielektra filed an insolvency petition, which may result in the reorganization, sale or liquidation of Dielektra. In accordance with SFAS No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets", Dielektra is treated as a discontinued operation. As a result of the discontinuation of financial support for Dielektra, the Company recognized an impairment charge of $22,023 for the write-off of Dielektra assets and other costs during the fourth quarter of the 2004 fiscal year. The income tax provision (benefit) for discontinued operations was $0, $150 and $(210) for fiscal years 2004, 2003 and 2002, respectively. The liabilities from discontinued operations totaling $19,438 at February 29, 2004 are reported separately on the consolidated balance sheet. These liabilities from discontinued operations included $12,094 for Dielektra's deferred pension liability. The Company expects to recognize a gain of approximately $17 million related to the reversal of these liabilities when the Dielektra insolvency process is completed, although it is unclear when the process will be completed. In addition to the impairment charge described above recognized in the 2004 fiscal year, the losses from operations of $5,596 and $6,142 for termination and other costs related to Dielektra, recorded in the first quarter of the 2004 fiscal year, have been included in discontinued operations in the Consolidated Statements of Operations in the periods in which they occurred. At the time of the discontinuation of support for Dielektra, $5,539 of the $6,142 of termination and other costs had been paid and the remaining $603 was included in liabilities from discontinued operations in the Consolidated Balance Sheet.
Dielektra's net sales and operating results for each of the three fiscal years ended February 29, 2004, March 2, 2003, and March 3, 2002, and assets and liabilities of discontinued operations at February 29, 2004 and March 2, 2003 were as follows:
Fiscal Year
2004 2003 2002
Net sales $ 14,429 $21,198 $28,379
Operating loss (5,596) (5,675) (5,184)
Restructuring and
impairment charges 28,165 1,220 2,921
Net loss $(33,761) $(6,895) $(8,105)
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February 29, March 2,
2004 2003
Current Assets $ - $ 5,697
Fixed Assets - 15,612
Total Assets - 21,309
Current and other liabilites 7,344 9,654
Pension liabilities 12,094 10,991
Total liabilities 19,438 20,645
Net (liabilities) assets $(19,438) $ 664
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10. RESTRUCTURING AND SEVERANCE CHARGES
The Company recorded pre-tax charges totaling $8,438 during the first and second quarters of fiscal year 2004 related to the realignment of its North America FR-4 business operations in Newburgh, New York and Fullerton, California. During the fourth quarter of fiscal year 2004 the Company recorded pretax charges of $112 related to workforce reductions in Europe and recovered $81 from sales of impaired assets related to its European operations. The components of these charges and the related liability balances and activity for the year ended February 29, 2004 are set forth below.
Charges 2/29/04
Closure Incurred or Remaining
Charges Paid Reversals Liabilities
New York and
California and other
realignment charges:
Lease payments, taxes,
utilities and other $7,292 648 - 6,644
Severance payments 1,258 1,146 - 112
$8,550 $1,794 $ - $6,756
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The severance payments were for the termination of hourly and salaried, administrative, manufacturing and support employees. Such employees were terminated during the 2004 fiscal year first, second and third quarters. The remaining liability for severance payments is expected to be paid to such employees during the fiscal year 2005 first quarter. The lease charges cover one lease obligation payable through December 2004 and a portion of another lease obligation payable through September 2013.
The Company recorded pre-tax charges of $4,674 and $120 in the fiscal year 2003 third quarter ended December 1, 2002 in connection with the closure of its Nelco U.K. manufacturing facility located in Skelmersdale, England, and severance costs at a North American business unit. As of February 29, 2004, there were no remaining liabilities. The Company recorded an $81 gain on the sale of previously written off equipment during the fourth quarter of fiscal 2004. The components of these charges and the charges incurred and paid since the third quarter of fiscal 2003 are set forth below.
Charges Recoveries 2/29/04
Closure Incurred or or Remaining
Charges Paid Reversals Liabilities
United Kingdom charges:
Impairment of long
lived assets $1,993 $1,912 $ 81 $ -
Severance payments
and related costs 1,997 1,997 - -
Utilities, maintenance,
taxes, other 684 684 - -
4,674 4,593 81 -
Other severance payments
and related costs 120 120 - -
$4,794 $4,713 $ 81 $ -
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The Company recorded pre-tax charges of $2,921 in its fiscal year 2002 third quarter ended November 25, 2001 in connection with the closure of the conventional lamination line of Dielektra and the reduction of the size of Dielektra's mass lamination operations. Such restructuring charges related to Dielektra have been included in loss from discontinued operations. The Company recorded pre-tax severance charges of $681 in its fiscal year 2002 first quarter ended May 27, 2001 and $125 in its third quarter ended November 25, 2001 for severance payments and related costs for terminated employees at the Company's continuing operations in Asia, Europe and North America. The terminated employees were hourly and salaried, administrative, manufacturing and support employees. As of March 2, 2003 there were no remaining liabilities relating to these charges.
As a result of the foregoing employee terminations and other less significant employee terminations in connection with business contractions and in the ordinary course of business and substantial numbers of employee resignations and retirements in the ordinary course of business, the total number of employees employed by the Company declined to approximately 1,200 as of February 29, 2004 from approximately 1,500 as of March 2, 2003, and 1700 at the end of the Company's 2002 fiscal year.
11. ASSET IMPAIRMENT CHARGES
As a result of continuing declines in the Company's North American business operations and Dielektra's mass lamination operation, during the fourth quarter of the 2003 fiscal year the Company reassessed the recoverability of the fixed assets of those operations based on cash flow projections and determined that such fixed assets were impaired. The Company recorded an impairment charge of $50,255, of which $1,220 related to Dielektra, in the Company's 2003 fiscal year fourth quarter to reduce the book values of such fixed assets to their estimated fair values. In accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the carrying values of such assets exceeded their fair values and were not recoverable.
12. SALE OF DIELECTRIC POLYMERS, INC.
On June 27, 2002, the Company sold its Dielectric Polymers, Inc. ("DPI") subsidiary to Adhesive Applications, Inc. of Easthampton, Massachusetts. The Company recorded a gain of $3,170 in its fiscal year 2003 second quarter ended September 1, 2002 in connection with the sale.
13. SALE OF NELCO TECHNOLOGY, INC.
During the Company's 1998 fiscal year and for several years prior thereto, more than 10% of the Company's total worldwide sales were to Delco Electronics Corporation, a subsidiary of General Motors Corp., and the Company's wholly owned subsidiary, Nelco Technology, Inc. ("NTI") located in Tempe, Arizona, had been Delco's principal supplier of semi-finished multilayer printed circuit board materials, commonly known as mass lamination, which were used by Delco to produce finished multilayer printed circuit boards. However, in March 1998, the Company was informed by Delco that Delco planned to close its printed circuit board fabrication plant and exit the printed circuit board manufacturing business. As a result, the Company's sales to Delco declined during the three-month period ended May 31, 1998, were negligible during the remainder of the 1999 fiscal year and were nil since then. See Note 19 for a description of the gain on NTI's lawsuit against Delco.
After March 1998, the business of NTI languished and its performance was unsatisfactory due primarily to the absence of the unique, high-volume, high-quality business that had been provided by Delco Electronics and the absence of any other customer in the North American electronic materials industry with a similar demand for the large volumes of semi-finished multilayer printed circuit board materials that Delco purchased from NTI. Although NTI's business experienced a resurgence in the 2001 fiscal year as the North American market for printed circuit materials became extremely strong and demand exceeded supply for the electronic materials manufactured by the Company, the Company's internal expectations and projections for the NTI business were for continuing volatility in the business' performance over the foreseeable future. Consequently, the Company commenced efforts to sell the business in the second half of its 2001 fiscal year; and in April 2001, the Company sold the assets and business of NTI and closed a related support facility, also located in Tempe, Arizona. As a result of this sale, the Company exited the mass lamination business in North America.
In connection with the sale of NTI and the closure of the related support facility, the Company recorded pre-tax charges of $15,707 in its fiscal year 2002 first quarter ended May 27, 2001. The components of these charges and the related liability balances and activity from the May 27, 2001 balance sheet date to the February 29, 2004 balance sheet date are set forth below.
Charges 2/29/04
Closure Incurred Remaining
Charges or Paid Reversals Liabilities
NTI charges:
Loss on sale of assets
and business $10,580 $10,580 $ - $ -
Severance payments 387 387 - -
Medical and other costs 95 95 - -
Support facility charges:
Impairment of long
lived assets 2,058 2,058 - -
Write down accounts
receivable 350 319 31 -
Write down inventory 590 590 - -
Severance payments 688 688 - -
Medical and other costs 133 133 - -
Lease payments, taxes,
utilities, maint. 781 485 - 296
Other 45 45 - -
$15,707 $15,380 $ 31 $296
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The severance payments and medical and other costs incurred in connection with the sale of NTI and the closure of the related support facility were for the termination of hourly and salaried, administrative, manufacturing and support employees, all of whom were terminated during the first and second fiscal quarters ended May 27, 2001 and August 26, 2001, respectively, and substantially all of the severance payments and related costs for such terminated employees (totaling $1,303) were paid during such quarters. The lease obligations will be paid through August 2004 pursuant to the related lease agreements.
NTI did not have a material effect on Park's consolidated financial position, results of operations, capital resources, liquidity or continuing operations, and the sale of NTI is not expected to have a material effect on the Company's future operating results.
14. EMPLOYEE BENEFIT PLANS
a. Profit Sharing Plan - The Company and certain of its subsidiaries have a non-contributory profit sharing retirement plan covering their regular full-time employees. The plan may be modified or terminated at any time, but in no event may any portion of the contributions revert back to the Company. The Company's contributions are accrued at the end of each fiscal year and paid to the plan in the subsequent fiscal year. The Company's contributions to the plan were $271 and $403 for fiscal years 2003 and 2002, respectively. The contribution for fiscal year 2004 has not been paid. Contributions are discretionary and may not exceed the amount allowable as a tax deduction under the Internal Revenue Code. In addition, the Company sponsors a 401(k) savings plan, pursuant to which the contributions of employees of certain subsidiaries were partially matched by the Company in the amounts of $260, $442 and $527 in fiscal years 2004, 2003 and 2002, respectively.
b. Pension Plan - The pension information provided below relates to the Company's subsidiary, Dielektra. As described in Note 9 above, the Company discontinued its financial support of Dielektra during the fiscal year 2004 fourth quarter and, accordingly, has included the February 29, 2004 pension liability in liabilities from discontinued operations. The pension plan is a non-contributory defined benefit pension plan which covers certain employees. Under the terms of this plan, participants may not accrue additional service time after December 31, 1987. The Company recorded deferred pension liabilities relating to this plan in the amounts of $12,094 and $10,991 at February 29, 2004 and March 2, 2003, respectively.
Net pension costs included the following components:
Fiscal Year
Changes in Benefit Obligations 2004 2003
Benefit obligation at beginning of year $ 10,991 $ 9,150
Service cost 58 94
Interest cost 661 571
Actuarial loss (gain) (558) (301)
Currency translation (gain)loss 1,707 2,117
Benefits paid (765) (640)
Payment for annuities - -
Benefit obligation at end of year $ 12,094 $ 10,991
Changes in Plan Assets
Fair value of plan assets at
beginning of year $ - $ -
Actual return on plan assets - -
Employer contributions 764 640
Benefits paid (764) (640)
Payment for annuities - -
Administrative expenses paid - -
Fair value of plan assets $ - $ -
Under funded status $(12,094) $(10,991)
Unrecognized net loss - 1,192
Net accrued pension cost $(12,094) $ (9,799)
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<caption
Fiscal Year
Components of Net Periodic Benefit Cost 2004 2003 2002
Service cost - benefits earned
during the period $ 58 $ 94 $ 82
Interest cost on projected
benefit obligation 661 571 533
Expected return on plan assets - - -
Amortization of unrecognized loss 18 55 40
Recognized net actuarial loss - - -
Effect of curtailment - - -
Net periodic pension cost $737 $720 $655
Fiscal Year
2004 2003
Projected benefit obligation $12,094 $10,991
Accumulated benefit obligation 12,094 10,991
Plan assets - -
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The projected benefit obligation for the plan was determined using assumed discount rates of 5.75% for fiscal years 2004 and 2003. Projected wage increases of 2.6% were also assumed for fiscal years 2004 and 2003.
15. COMMITMENTS AND CONTINGENCIES
a.Lease Commitments - The Company conducts certain of its operations in leased facilities, which include several manufacturing plants, warehouses and offices, and land leases. The leases on facilities are for terms of up to 10 years, the latest of which expires in 2007. Many of the leases contain renewal options for periods ranging from one to ten years and require the Company to pay real estate taxes and other operating costs. The latest land lease expiration is 2013 and this land lease contains renewal options of up to 35 years.
These non-cancelable operating leases have the following payment schedule.
Fiscal Amount
Year
2005 $ 2,097
2006 1,346
2007 906
2008 838
2009 692
Thereafter 4,154
$10,033
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Rental expenses, inclusive of real estate taxes and other costs, were $2,659, $2,948 and $3,933 for fiscal years 2004, 2003 and 2002, respectively.
b. Environmental Contingencies - The Company and certain of its subsidiaries have been named by the Environmental Protection Agency (the "EPA") or a comparable state agency under the Comprehensive Environmental Response, Compensation and Liability Act (the "Superfund Act") or similar state law as potentially responsible parties in connection with alleged releases of hazardous substances at eight sites. In addition, a subsidiary of the Company has received cost recovery claims under the Superfund Act from other private parties involving two other sites and has received requests from the EPA under the Superfund Act for information with respect to its involvement at three other sites.
Under the Superfund Act and similar state laws, all parties who may have contributed any waste to a hazardous waste disposal site or contaminated area identified by the EPA or comparable state agency may be jointly and severally liable for the cost of cleanup. Generally, these sites are locations at which numerous persons disposed of hazardous waste. In the case of the Company's subsidiaries, generally the waste was removed from their manufacturing facilities and disposed at waste sites by various companies which contracted with the subsidiaries to provide waste disposal services. Neither the Company nor any of its subsidiaries have been accused of or charged with any wrongdoing or illegal acts in connection with any such sites. The Company believes it maintains an effective and comprehensive environ mental compliance program.
The insurance carriers that provided general liability insurance coverage to the Company and its subsidiaries for the years during which the Company's subsidiaries' waste was disposed at these sites have agreed to pay, or reimburse the Company and its subsidiaries for, 100% of their legal defense and remediation costs associated with three of these sites and 25% of such costs associated with another one of these sites.
The total costs incurred by the Company and its subsidiaries in connection with these sites, including legal fees incurred by the Company and its subsidiaries and their assessed share of remediation costs and excluding amounts paid or reimbursed by insurance carriers, were approximately $1, $131 and $200 in fiscal years 2004, 2003 and 2002, respectively. The recorded liabilities included in accrued liabilities for environmental matters were $2,389, $4,246 and $3,975 for fiscal years 2004, 2003 and 2002, respectively. As discussed in Note 9, liabilities from discontinued operations have been segregated on the Consolidated Balance Sheet and include $2,121 for environmental matters related to Dielektra.
Included in cost of sales are charges for actual expenditures and accruals, based on estimates, for certain environmental matters described above. The Company accrues estimated costs associated with known environmental matters, when such costs can be reasonably estimated and when the outcome appears probable. The Company believes that the ultimate disposition of known environmental matters will not have a material adverse effect on the liquidity, capital resources, business or consolidated financial position of the Company. However, one or more of such environmental mat ters could have a significant negative impact on the Company's consolidated financial results for a particular reporting period.
16. FOREIGN CURRENCY CONTRACTS
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities". SFAS 133, as amended, requires that all derivative instruments be recognized on the balance sheet at fair value. In addition, the standard specifies criteria for designation and effectiveness of hedging relationships and establishes accounting rules for reporting changes in the fair value of a derivative instrument depending on the designated type of hedge.
The Company is exposed to foreign currency exchange rate fluctuations in the normal course of business. The Company uses derivative instruments (forward contracts) to hedge certain foreign currency exposures as part of its risk management strategy. The objective is to offset gains and losses resulting from these exposures with gains and losses on the derivative contracts used to hedge them, thereby reducing the volatility of earnings or protecting fair values of assets and liabilities. The Company does not enter into any trading or speculative positions with regard to derivative instruments.
The Company primarily enters into forward contracts, with maturities of three months or less, designated as cash flow hedges to protect against the foreign currency exchange rate risks inherent in its forecasted transactions related to purchase commitments and sales, denominated in various currencies. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is initially recorded in accumulated other comprehensive income as a separate component of stockholders' equity. Once the hedged transaction is recognized, the gain or loss is reclassified into earnings. The foreign currency forward contracts held by the Company at February 29, 2004 were not designated hedges under SFAS 133 and, accordingly, the contracts were marked to market and the resulting gains and losses were recognized in the income statement.
At February 29, 2004 and March 2, 2003, the Company had outstanding foreign exchange contracts in notional amounts totaling $4,306 and $0, respectively.
17. BUSINESS SEGMENTS
The Company considers itself to operate in one business segment. The Company's electronic materials products are marketed primarily to leading independent printed circuit board fabricators, electronic manufacturing service companies, electronic contract manufacturers and major electronic original equipment manufacturers ("OEMs") located throughout North America, Europe and Asia. The Company's advanced composite materials customers, the majority of which are located in the United States, include OEMs, independent firms and distributors in the electronics, aerospace and industrial industries.
Sales are attributed to geographic region based upon the region from which the materials were shipped to the customer. Inter-segment sales and sales between geographic regions were not significant.
Financial information regarding the Company's continuing operations by geographic region follows:
Fiscal Year
2004 2003 2002
United States $106,080 $117,889 $132,520
Europe 31,982 32,322 27,128
Asia 56,174 45,367 42,033
Total sales $194,236 $195,578 $201,681
United States $ 38,549 $ 44,425 $104,386
Europe 10,969 25,373 22,954
Asia 21,470 21,159 22,943
Total long-lived assets $ 70,988 $ 90,957 $150,283
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18. CUSTOMER AND SUPPLIER CONCENTRATIONS
a. Customers - Sales to Sanmina Corporation were 16.3%, 19.1% and 20.7% of the Company's total worldwide sales from its continuing operations for fiscal years 2004, 2003 and 2002, respectively. Sales to Tyco Printed Circuit Group L.P. were 12.2%, 11.0% and 12.9% of the Company's total worldwide sales from its continuing operations for fiscal years 2004, 2003 and 2002. Sales to Multilayer Technology, Inc. were 9.7%, 11.1% and 8.9% of the Company's total worldwide sales from its continuing operations for fiscal years 2004, 2003 and 2002, respectively.
While no other customer accounted for 10% or more of the Company's total worldwide sales from its continuing operations in fiscal year 2004, and the Company is not dependent on any single customer, the loss of a major electronic materials customer or of a group of customers could have a material adverse effect on the Company's business and results of operations.
b.Sources of Supply - The principal materials used in the manufacture of the Company's electronic materials products are specially manufactured copper foil, fiberglass cloth and synthetic reinforcements, and specially formulated resins and chemicals. Although there are a limited number of qualified suppliers of these materials, the Company has nevertheless identified alternate sources of supply for each of such materials. While the Company has not experienced significant problems in the delivery of these materials and considers its relationships with its suppliers to be strong, a disruption of the supply of material from a principal supplier could adversely affect the Company's electronic materials business. Furthermore, substitutes for these materials are not readily available and an inability to obtain essential materials, if prolonged, could materially adversely affect the Company's electronic materials business.
19. GAIN ON DELCO LAWSUIT
The United States District Court for the District of Arizona entered final judgment in favor of the Company's subsidiary, NTI, in its lawsuit against Delco Electronics Corporation, a subsidiary of Delphi Automotive Systems Corporation, on Nelco's claim for breach of the implied covenant of good faith and fair dealing. As a result, the Company received a net amount of $33,088 million from Delco on July 1, 2003 in satisfaction of the judgment. See Note 13 above for information regarding the sale of NTI.
20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter
First Second Third Fourth
(In thousands, except per share amounts)
Fiscal 2004:
Net sales $44,323 $ 43,566 $ 51,058 $ 55,289
Gross profit 4,623 5,919 9,764 12,394
(Loss) earnings from
continuing operations (1,644) 20,982 2,823 7,748
Loss from discontinued
operations (6,807) (1,944) (1,838) (23,172)
Net (loss) earnings (8,451) 19,038 985 (15,424)
Basic (loss) income per
share:
(Loss) earnings from
continuing operations $(0.08) $ 1.06 $ 0.14 $ 0.39
Loss from discontinued
operatings $(0.35) $ (0.10) $(0.09) $(1.17)
Net (loss) earnings per share $(0.43) $ 0.96 $ 0.05 $(0.78)
Diluted (loss) earnings
per share:
(Loss) earnings from
continuing operations $(0.08) $ 1.05 $ 0.14 $ 0.38
Loss from discontinued
operations $(0.35) $ (0.10) $(0.09) $(1.14)
Net (loss) earnings per share $(0.43) $ 0.95 $ 0.05 $(0.76)
Weighted average common
shares outstanding:
Basic 19,709 19,759 19,764 19,783
Diluted 19,709 19,943 20,083 20,167
Fiscal 2003:
Net sales $ 51,172 $ 51,343 $ 47,967 $ 45,096
Gross profit 7,010 7,272 6,311 6,064
Earnings (loss)from
continuing operations 735 3,336 (3,808) (44,127)
Loss from discontinued
operations (1,371) (1,749) (1,496) (2,129)
Net (loss) earnings (636) 1,587 (5,304) (46,406)
Basic (loss) earnings per share:
Earnings (loss) from
continuing operations $ 0.04 $ 0.17 $ (0.19) $ (2.24)
Loss from discontinued
operations $(0.07) $ (0.09) $ (0.08) $ (0.12)
Net (loss) earnings per share $(0.03) $ 0.08 $ (0.27) $ (2.36)
Diluted (loss) earnings
per share:
Earnings (loss) from
continuing operations $ 0.04 $ 0.17 $ (0.19) $ (2.24)
Loss from discontinued
operations $(0.07) $ (0.09) $ (0.08) $ (0.12)
Net (loss) earnings per share $(0.03) $ 0.08 $ (0.27) $ (2.36)
Weighted average common
shares outstanding:
Basic 19,661 19,669 19,682 19,684
Diluted 20,176 20,013 19,682 19,684
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Earnings (loss) per share are computed separately for each quarter. Therefore, the sum of such quarterly per share amounts may differ from the total for the years.
21. RECENTLY ISSUED ACCOUNTING PROUNOUNCEMENTS
In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), effective for fiscal years beginning after June 15, 2002. SFAS 143 requires the fair value of liabilities for asset retirement obligations to be recognized in the period in which the obligations are incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The adoption did not have a material effect on the Company's consolidated results of operations or financial condition.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
(a) Disclosure Controls and Procedures. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of February 29, 2004, the end of the period covered by this annual report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.
(b) Internal Control Over Financial Reporting. There has not been any change in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d- 15(f) under the Exchange Act) during the fourth fiscal quarter of the fiscal year to which this report relates that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information called for by this item (except for information as to the Company's executive officers, which information appears elsewhere in this Report) is incorporated by reference to the Company's definitive proxy statement for the 2004 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
Item 11. Executive Compensation.
The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 2004 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table provides information as of the end of the Company's most recent fiscal year with respect to compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance.
Number of securities
Number of remaining available
securities for future issuance
to be issued upon Weighted-average under equity
exercise of exercise price compensation plans
outstanding of outstanding (excluding
options, warrants options, warrants securities reflected
Plan category and rights and rights in column (A))
------------- ----------------- ----------------- --------------------
(A) (B) (C)
Equity compensation
approved by plans
security holders (a) 1,396,653 $19.91 705,725
Equity compensation
plans not approved
by security holders (a) -0- -0- -0-
Total 1,396,653 $19.91 705,725
---------------
(a)The Company's only equity compensation plans are its 2002 Stock
Option Plan, which was approved by the Company's shareholders in
July 2002, and its 1992 Stock Option Plan, which was approved by the
Company's shareholders in July 1992. Authority to grant additional
options under the 1992 Plan expired on March 24, 2002, and all
options granted under the 1992 Plan will expire in March 2012 or
earlier; and authority to grant additional options under the 2002
Plan will expire on May 21, 2012, and all options granted to date
under the 2002 Plan will expire in January 2014 or earlier.
|
The other information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 2004 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
The information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 2004 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
Item 14. Principal Accountant Fees and Services.
This information called for by this Item is incorporated by reference to the Company's definitive proxy statement for the 2004 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Page
Reports on Form 8-K.
(a) Documents filed as a part of this Report
(1)Financial Statements:
The following Consolidated Financial
Statements of the Company are included in
Part II, Item 8:
Report of Ernst & Young LLP, independent 38
auditors
Balance Sheets 39
Statements of Operations 40
Statements of Stockholders' Equity 41
Statements of Cash Flows 42
Notes to Consolidated Financial Statements 43
(1-21)
(2)Financial Statement Schedules:
The following additional information should
be read in conjunction with the
Consolidated Financial Statements of the
Registrant described in item 15(a)(1)
above:
Schedule II - Valuation and Qualifying 69
Accounts
|
All other schedules have been omitted because they are not applicable or not required, or the information is included elsewhere in the financial statements or notes thereto.
(3)Exhibits:
The information required by this Item relating to Exhibits to this Report is included in the Exhibit Index beginning on page 70 hereof.
(b) Reports on Form 8-K.
(1) Report on Form 8-K, dated December 23, 2003, Commission File No. 1-4415, reporting in Item 12 that the Company issued a news release on December 23, 2003 reporting its results of operations for the fiscal year 2004 third quarter ended November 30, 2003 and furnishing the news release to the Securities and Exchange Commission pursuant to Item 12 of Form 8-K as Exhibit 99.1 thereto.
(2) Report on Form 8-K, dated February 4, 2004, Commission File No. 1-4415, reporting in Item 9 that the Company issued a news release on February 4, 2004 announcing that it was discontinuing its financial support of Dielektra GmbH, the Company's wholly owned subsidiary located in Cologne, Germany, which supplies electronic materials to European circuit board manufacturers, and furnishing the news release to the Securities and Exchange Commission pursuant to Item 9 of Form 8-K as Exhibit 99.1 thereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 12, 2004 PARK ELECTROCHEMICAL CORP.
By:/s/Brian E. Shore
Brian E. Shore,
President and Chief Executive
Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
President and Chief
/s/Brian E. Shore Executive Officer and
Brian E. Shore Director May 12, 2004
(principal executive
officer)
Senior Vice President and
/s/Murray O. Stamer Chief Financial Officer
Murray O. Stamer (principal financial and May 12, 2004
accounting officer)
/s/Jerry Shore Chairman of the Board and
Jerry Shore Director May 12, 2004
/s/Mark S. Ain
Mark S. Ain Director May 12, 2004
/s/Anthony Chiesa
Anthony Chiesa Director May 12, 2004
/s/Lloyd Frank
Lloyd Frank Director May 12, 2004
|
Schedule II
Part 1 of table
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column C
Column A Column B Additions
------------------- --------- --------------------
Balance at
Beginning of Costs and
Description Period Expenses Other
DEFERRED INCOME TAX ASSET
VALUATION ALLOWANCE:
52 weeks ended
February 29, 2004 $18,710,000 $ 2,854,000 -
52 weeks ended
March 2, 2003 $ 3,916,000 $14,794,000 -
53 weeks ended
March 3, 2002 $ 3,193,000 $ 723,000 -
|
Column A Column B Column C
----------------- --------- --------------
Balance at Charged to
Beginning Cost and
Description of Period Expenses
ALLOWANCE FOR
DOUBTFUL ACCOUNTS:
52 weeks ended
February 29, 2004 $1,893,000 $ 292,000
52 weeks ended
March 2, 2003 $1,817,000 $ 366,000
53 weeks ended
March 3 2002 $2,074,000 $ 123,000
(A) Uncollectable accounts, net of recoveries.
|
Schedule II
Part 2 of table
PARK ELECTROCHEMICAL CORP. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column D Column E
----------------- -------- --------
Balance at
End of
Description Reductions Period
DEFERRED INCOME TAX
ASSET VALUATION
ALLOWANCE:
52 weeks ended
February 29, 2004 - $21,564,000
52 weeks ended
March 2, 2003 - $18,710,000
53 weeks ended
March 3, 2002 - $ 3,916,000
|
Column A Column D Column E
----------------- -------- --------
Other Balance at
Accounts Translation End of
Description Written Off Adjustment Period
(A)
ALLOWANCE FOR
DOUBTFUL ACCOUNTS:
52 weeks ended
February 29, 2004 $ 145,000 $(195,000) $1,845,000
52 weeks ended
March 2, 2003 $(286,000) $ (4,000) $1,893,000
53 weeks ended
March 3 2002 $(366,000) $ (14,000) $1,817,000
(A) Uncollectable accounts, net of recoveries.
|
EXHIBIT INDEX
Exhibit
Numbers Description Page
3.1 Restated Certificate of Incorporation, dated
March 28, 1989, filed with the Secretary of State
of the State of New York on April 10, 1989, as
amended by Certificate of Amendment of the
Certificate of Incorporation, increasing the
number of authorized shares of Common stock from
15,000,000 to 30,000,000 shares, dated July 12,
1995, filed with the Secretary of State of the
State of New York on July 17, 1995, and by
Certificate of Amendment of the Certificate of
Incorporation, amending certain provisions
relating to the rights, preferences and
limitations of the shares of a series of
Preferred Stock, date August 7, 1995, filed with
the Secretary of State of the State of New York
on August 16, 1995 (Reference is made to Exhibit
3.01 of the Company's Annual Report on Form 10-K
for the fiscal year ended March 3, 2002,
Commission File No. 1-4415, which is incorporated
herein by reference.)............................ -
3.2 Certificate of Amendment of the Certificate of
Incorporation, increasing the number of
authorized shares of Common Stock from 30,000,000
to 60,000,000 shares, dated October 10, 2000,
filed with the Secretary of State of the State of
New York on October 11, 2000...................... -
3.3 By-Laws, as amended May 21, 2002 (Reference is
made to Exhibit 3.03 of the Company's Annual
Report on Form 10-K for the fiscal year ended
March 3, 2002, Commission File No. 1-4415, which
is incorporated herein by reference.)......... -
4.1 Amended and Restated Rights Agreement, dated as
of July 12, 1995, between the Company and
Registrar and Transfer Company, as Rights Agent,
relating to the Company's Preferred Stock
Purchase Rights. (Reference is made to Exhibit 1
to Amendment No. 1 on Form 8-A/A filed on August
10, 1995, Commission File No. 1-4415, which is
incorporated herein by reference.)............. -
10.1 Lease dated December 12, 1989 between Nelco
Products, Inc. and James Emmi regarding real
property located at 1100 East Kimberly Avenue,
Anaheim, California and letter dated December 29,
1994 from Nelco Products, Inc. to James Emmi exer
cising its option to extend such Lease (Reference
is made to Exhibit 10.01 of the Company's Annual
Report on Form 10-K for the fiscal year ended
March 3, 2002, Commission File No. 1-4415, which
is incorporated herein by reference.).......... -
10.2 Lease dated December 12, 1989 between Nelco
Products, Inc. and James Emmi regarding real
property located at 1107 East Kimberly Avenue,
Anaheim, California and letter dated December 29,
1994 from Nelco Products, Inc. to James Emmi exer
cising its option to extend such Lease (Reference
is made to Exhibit 10.02 of the Company's Annual
Report on Form 10-K for the fiscal year ended
March 3, 2002, Commission File No. 1-4415, which
is incorporated herein by reference.)........... -
10.3 Lease Agreement dated August 16, 1983 and Exhibit
C, First Addendum to Lease, between Nelco
Products, Inc. and TCLW/Fullerton regarding real
property located at 1411 E. Orangethorpe Avenue,
Fullerton, California (Reference is made to
Exhibit 10.03 of the Company's Annual Report on
Form 10-K for the fiscal year ended March 3,
2002, Commission File No. 1-4415, which is
incorporated herein by reference.)............. -
10.3(a) Second Addendum to Lease dated January 26, 1987
to Lease Agreement dated August 16, 1983 (see
Exhibit 10.03 hereto) between Nelco Products,
Inc. and TCLW/Fullerton regarding real property
located at 1421 E. Orangethorpe Avenue,
Fullerton, California (Reference is made to
Exhibit 10.03(a) of the Company's Annual Report
on Form 10-K for the fiscal year ended March 3,
2002, Commission File No. 1-4415, which is
incorporated herein by reference.).......... -
10.3(b) Third Addendum to Lease dated January 7, 1991 and
Fourth Addendum to Lease dated January 7, 1991 to
Lease Agreement dated August 16, 1983 (see
Exhibit 10.03 hereto) between Nelco Products,
Inc. and TCLW/Fullerton regarding real property
located at 1411, 1421 and 1431 E. Orangethorpe
Avenue, Fullerton, California. (Reference is made
to Exhibit 10.03(b) of the Company's Annual
Report on Form 10-K for the fiscal year ended
March 2, 1997, Commission File No. 1-4415, which
is incorporated herein by reference.).......... -
10.3(c) Fifth Addendum to Lease dated July 5, 1995 to
Lease dated August 16, 1983 (see Exhibit 10.03
hereto) between Nelco Products, Inc. and
TCLW/Fullerton regarding real property located at
1411 E. Orangethorpe Avenue, Fullerton,
California (Reference is made to Exhibit 10.03(c)
of the Company's Annual Report on Form 10-K for
the fiscal year ended March 3, 2002, Commission
File No. 1-4415, which is incorporated herein by
reference.).................................... -
10.4 Lease Agreement dated May 26, 1982 between Nelco
Products Pte. Ltd. (lease was originally entered
into by Kiln Technique (Private) Limited, which
subsequently assigned this lease to Nelco
Products Pte. Ltd.) and the Jurong Town Cor
poration regarding real property located at 4 Gul
Crescent, Jurong, Singapore (Reference is made to
Exhibit 10.04 of the Company's Annual Report on
Form 10-K for the fiscal year ended March 3,
2002, Commission File No. 1-4415, which is
incorporated herein by reference.)............. -
10.4(a) Deed of Assignment, dated April 17, 1986 between
Nelco Products Pte. Ltd., Kiln Technique
(Private) Limited and Paul Ma, Richard Law, and
Michael Ng, all of Peat Marwick & Co., of the
Lease Agreement dated May 26, 1982 (see Exhibit
10.04 hereto) between Kiln Technique (Private)
Limited and the Jurong Town Corporation regarding
real property located at 4 Gul Crescent, Jurong,
Singapore (Reference is made to Exhibit 10.04(a)
of the Company's Annual Report on Form 10-K for
the fiscal year ended March 3, 2002, Commission
File No. 1-4415, which is incorporated herein by
reference.)................................... -
10.5(b) 1992 Stock Option Plan of the Company, as amended
by First Amendment thereto. (Reference is made to
Exhibit 10.06(b) of the Company's Annual Report
on Form 10-K for the fiscal year ended March 1,
1998, Commission File No. 1-4415, which is
incorporated herein by reference. This exhibit is
a management contract or compensatory plan or
arrangement.).................................... -
10.6 Amended and Restated Employment Agreement dated
February 28, 1994 between the Company and Jerry
Shore. (Reference is made to Exhibit 10.06 of the
Company's Annual Report on Form 10-K for the
fiscal year ended March 3, 2002, Commission File
No. 1-4415, which is incorporated herein by
reference. This exhibit is a management contract
or compensatory plan or arrangement.)........... -
10.6(a) Amendment No. 1 dated March 1, 1995 to the
Amended and Restated Employment Agreement dated
February 28, 1994 (see Exhibit 10.06 hereto)
between the Company and Jerry Shore. (Reference
is made to Exhibit 10.06(a) of the Company's
Annual Report on Form 10-K for the fiscal year
ended March 3, 2002, Commission File No. 1-4415,
which is incorporated herein by reference. This
exhibit is a management contract or compensatory
plan or arrangement.).......................... -
10.6(b) Amendment No. 2 dated December 5, 1996 to the
Amended and Restated Employment Agreement dated
February 28, 1994 (see Exhibit 10.06 hereto)
between the Company and Jerry Shore. (Reference
is made to Exhibit 10.07(b) of the Company's
Annual Report on Form 10-K for the fiscal year
ended March 2, 1997, Commission File No. 1-4415,
which is incorporated herein by reference. This
exhibit is a management contract or compensatory
plan or arrangement.).......................... -
10.6(c) Amendment No. 3 dated October 14, 1997 to the
Amended and Restated Employment Agreement dated
February 28, 1994 (see Exhibit 10.06 hereto)
between the Company and Jerry Shore. (Reference
is made to Exhibit 10.07(c) of the Company's
Annual Report on Form 10-K for the fiscal year
ended March 1, 1998, Commission File No. 1-4415,
which is incorporated herein by reference. This
exhibit is a management contract or compensatory
plan or arrangement.)........................... -
10.7 Lease dated April 15, 1988 between FiberCote
Industries, Inc. (lease was initially entered
into by USP Composites, Inc., which subsequently
changed its name to FiberCote Industries, Inc.)
and Geoffrey Etherington, II regarding real
property located at 172 East Aurora Street,
Waterbury, Connecticut (Reference is made to
Exhibit 10.07 of the Company's Annual Report on
Form 10-K for the fiscal year ended March 3,
2002, Commission File No. 1-4415, which is
incorporated herein by reference.)............. -
10.7(a) Amendment to Lease dated December 21, 1992 to
Lease dated April 15, 1988 (see Exhibit 10.07
hereto) between FiberCote Industries, Inc. and
Geoffrey Etherington II regarding real property
located at 172 East Aurora Street, Waterbury, Con
necticut (Reference is made to Exhibit 10.07(a)
of the Company's Annual Report on Form 10-K for
the fiscal year ended March 3, 2002, Commission
File No. 1-4415, which is incorporated herein by
reference.)..................................... -
10.7(b) Letter dated June 30, 1997 from FiberCote
Industries, Inc. to Geoffrey Etherington II
extending the Lease dated April 15, 1988 (see
Exhibit 10.07 hereto) between FiberCote
Industries, Inc. and Geoffrey Etherington II
regarding real property located at 172 East
Aurora Street, Waterbury Connecticut. (Reference
is made to Exhibit 10.08(b) of the Company's
Annual Report on Form 10-K for the fiscal year
ended March 1, 1998, Commission File No. 1-4415,
which is incorporated herein by reference.)...... -
10.8 Lease dated August 31, 1989 between Nelco
Technology, Inc. and Cemanudi Associates
regarding real property located at 1104 West
Geneva Drive, Tempe, Arizona (Reference is made
to Exhibit 10.08 of the Company's Annual Report
on Form 10-K for the fiscal year ended March 3,
2002, Commission File No. 1-4415, which is
incorporated herein by reference.)............. -
10.8(a) First Amendment to Lease dated October 21, 1994
to Lease dated August 31, 1989 (see Exhibit 10.08
hereto) between Nelco Technology, Inc. and
Cemanudi Associates regarding real property
located at 1104 West Geneva Drive, Tempe, Arizona
(Reference is made to Exhibit 10.08(a) of the
Company's Annual Report on Form 10-K for the
fiscal year ended March 3, 2002, Commission File
No. 1-4415, which is incorporated herein by
reference.)................................... -
10.10 Lease dated December 12, 1990 between Neltec,
Inc. and NZ Properties, Inc. regarding real
property located at 1420 W. 12th Place, Tempe,
Arizona. (Reference is made to Exhibit 10.13 of
the Company's Annual Report on Form 10-K for the
fiscal year ended March 2, 1997, Commission File
No. 1-4415, which is incorporated herein by
reference.).................................... -
10.10(a Letter dated January 8, 1996 from Neltec, Inc. to
) NZ Properties, Inc. exercising its option to
extend the Lease dated December 12, 1990 (see
Exhibit 10.10 hereto) between Neltec, Inc. and NZ
Properties, Inc. regarding real property located
at 1420 W. 12th Place, Tempe, Arizona. (Reference
is made to Exhibit 10.13(a) of the Company's
Annual Report on Form 10-K for the fiscal year
ended March 2, 1997, Commission File No. 1-4415,
which is incorporated herein by reference.).... -
10.12 Tenancy Agreement dated October 8, 1992 between
Nelco Products Pte. Ltd. and Jurong Town
Corporation regarding real property located at 36
Gul Lane, Jurong Town, Singapore. (Reference is
made to Exhibit 10.18 of the Company's Annual
Report on Form 10-K for the fiscal year ended
February 28, 1993, Commission File No. 1-4415,
which is incorporated herein by reference.)... -
10.12(a Tenancy Agreement dated November 3, 1995 between
) Nelco Products Pte. Ltd. and Jurong Town
Corporation regarding real property located at 36
Gul Lane, Jurong Town, Singapore. (Reference is
made to Exhibit 10.16(a) of the Company's Annual
Report on Form 10-K for the fiscal year ended
March 2, 1997, Commission File No. 1-4415, which
is incorporated herein by reference.)........... -
10.13 Lease Contract dated February 26, 1988 between
the New York State Department of Transportation
and the Edgewater Stewart Company regarding real
property located at 15 Governor Drive in the
Stewart International Airport Industrial Park,
New Windsor, New York (Reference is made to
Exhibit 10.13 of the Company's Annual Report on
Form 10-K for the fiscal year ended March 3,
2002, Commission File No. 1-4415, which is
incorporated herein by reference.)............ -
10.13(a Assignment and Assumption of Lease dated February
) 16, 1995 between New England Laminates Co., Inc.
and the Edgewater Stewart Company regarding the
assignment of the Lease Contract (see Exhibit
10.13 hereto) for the real property located at 15
Governor Drive in the Stewart International
Airport Industrial Park, New Windsor, New York
(Reference is made to Exhibit 10.13(a) of the
Company's Annual Report on Form 10-K for the
fiscal year ended March 3, 2002, Commission File
No. 1-4415, which is incorporated herein by
reference.)...................................... -
10.13(b Lease Amendment No. 1 dated February 17, 1995
) between New England Laminates Co., Inc. and the
New York State Department of Transportation to
Lease Contract dated February 26, 1988 (see
Exhibit 10.13 hereto) regarding the real property
located at 15 Governor Drive in the Stewart
International Airport Industrial Park, New
Windsor, New York (Reference is made to Exhibit
10.13(b) of the Company's Annual Report on Form
10-K for the fiscal year ended March 3, 2002,
Commission File No. 1-4415, which is incorporated
herein by reference.)............................ -
10.15 2002 Stock Option Plan of the Company (Reference
is made to Exhibit 10.01 of the Company's
Quarterly Report on Form 10-Q for the fiscal
quarter ended September 1, 2002, Commission File
No. 1-4415, which is incorporated herein by
reference. This exhibit is a management contract
or compensatory plan or arrangement.)........... -
14.1 Code of Ethics for Chief Executive Officer and
Senior Financial Officers............... 76
21.1 Subsidiaries of the Company.................. 78
23.1 Consent of Ernst & Young LLP................. 79
31.1 Certification of Chief Executive Officer pursuant
to Exchange Act Rule 13a-14(a) or 15d-14(a)..... 80
31.2 Certification of Chief Financial Officer pursuant
to Exchange Act Rule 13a-14(a) or 15d-14(a)..... 82
32.1 Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002... 84
32.2 Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 85
|
[10k.04el]ll
Exhibit 14.1
PARK ELECTROCHEMICAL CORP.
CODE OF ETHICS
FOR CHIEF EXECUTIVE OFFICER AND SENIOR FINANCIAL OFFICERS
ADOPTED ON MAY 6, 2004
The Company is committed to conducting its business in accordance with applicable laws, rules and regulations and to full and accurate financial disclosure in compliance with applicable law. This Code of Ethics, applicable to the Company's Chief Executive Officer, Chief Financial Officer and Controller (or persons performing similar functions) (together, "Senior Officers"), sets forth specific policies related to the performance by the Senior Officers of their duties.
A Senior Officer must not only comply with applicable law but also engage in and promote honest and ethical conduct and abide by the Code of Business Conduct and Ethics and other Company policies and procedures that govern the conduct of the Company's business.
Compliance With Laws, Rules And Regulations
Senior Officers are required to comply with the laws, rules and regulations that govern the conduct of the Company's business and to report any suspected violations in accordance with the section below entitled "Compliance With Code Of Ethics."
Conflicts Of Interest
A Senior Officer's obligation to conduct the Company's business in an honest and ethical manner includes the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. No Senior Officer shall make any investment, accept any position or benefits, participate in any transaction or business arrangement or otherwise act in a manner that creates or appears to create a conflict of interest unless the Senior Officer makes full disclosure of all facts and circumstances to, and obtains the prior written approval of, (1) the General Counsel or the Chair of the Audit Committee of the Board of Directors and (2) the Chairman of the Board of Directors.
Disclosures
It is Company policy to make full, fair, accurate, timely and understandable disclosure in compliance with all applicable laws and regulations in all reports and documents that the Company files with, or submits to, the Securities and Exchange Commission and in all other public communications made by the Company. Senior Officers are required to promote compliance with this policy and to abide by Company standards, policies and procedures designed to promote compliance with this policy.
Compliance With Code Of Ethics
If a Senior Officer knows of or suspects a violation of applicable laws, rules or regulations or this Code of Ethics, such Senior Officer must immediately report that information to (1) the General Counsel or any member of the Audit Committee of the Board of Directors and (2) the Chairman of the Board of Directors. No one will be subject to retaliation because of a good faith report of a suspected violation.
Violations of this Code of Ethics may result in disciplinary action, up to and including discharge. The Audit Committee of the Board of Directors shall determine, or shall designate appropriate persons to determine, appropriate action in response to violations of this Code.
Waivers Of Code Of Ethics
If a Senior Officer desires to seek a waiver of the Code of Ethics, such Senior Officer must make full disclosure of his particular circumstances to (1) the General Counsel or the Audit Committee of the Board of Directors and (2) the Chairman of the Board of Directors. Amendments to and waivers of this Code of Ethics will be publicly disclosed if and as required by applicable laws and regulations.
No Rights Created
This Code of Ethics is a statement of certain fundamental principles, policies and procedures that govern the Company's Senior Officers in the conduct of the Company's business. It is not intended to and does not create any rights in any employee, customer, supplier, competitor, shareholder or any other person or entity.
[exhitib14.1]ll
EXHIBIT 21.1
SUBSIDIARIES OF PARK ELECTROCHEMICAL CORP.
The following table lists Park's subsidiaries and the jurisdiction in which each such subsidiary is organized.
Name Jurisdiction of
Incorporation
Dielektra GmbH Germany
FiberCote Industries, Inc. Connecticut
Nelco Products, Inc. Delaware
Nelco Products Pte. Ltd. Singapore
Nelco Products Snd. Bhd. Malaysia
Nelco Products (Wuxi) Co., Ltd. China
Nelco S.A.S. France
Nelco STS, Inc. Delaware
Nelco Technology, Inc. Delaware
Nelco Technology (Zhuhai FTZ) Ltd. China
Neltec, Inc. Delaware
Neltec S.A. France
Neluk, Inc. Delaware
New England Laminates Co., Inc. New York
New England Laminates (U.K.) Ltd. England
Park Advanced Product Development Delaware
Corp.
ParkNelco SNC France
Technocharge Limited England
|
[exhibit21.1-04]ll
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements Nos. 33-3777, 33-16650, 33-55383, 33- 63956 and 333-12463 on Form S-8 of our report, dated April 21, 2004 with respect to the consolidated financial statements and schedule of Park Electrochemical Corp. included in the Annual Report on Form 10-K of Park Electrochemical Corp. for the fiscal year ended February 29, 2004.
ERNST & YOUNG LLP
New York, New York
May 13, 2004
81
EXHIBIT 31.1
Certification of Chief Executive Officer
Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a)
I, Brian E. Shore, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended February 29, 2004 of Park Electrochemical Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Date: May 12, 2004 /s/Brian E. Shore____________________ Brian E. Shore President and Chief Executive Officer |
[exhibit3101]ll
83
EXHIBIT 31.2
Certification of Chief Financial Officer
Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a)
I, Murray O. Stamer, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended February 29, 2004 of Park Electrochemical Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in
which this report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and
report financial information; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Date: May 12, 2004 /s/Murray O. Stamer Murray O. Stamer Senior Vice President and Chief Financial Officer |
[exhibit3102]ll
85
EXHIBIT 32.1
Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Park
Electrochemical Corp.(the "Company") for the fiscal year
ended February 29, 2004 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), Brian
E. Shore, as Chief Executive Officer of the Company, hereby
certifies, pursuant to 18 U.S.C. 1350, as adopted pursuant
to 906 of the Sarbanes-Oxley Act of 2002, that, to the best
of his knowledge:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/Brian E. Shore Name: Brian E. Shore Title: President and Chief Executive Officer Date: May 12, 2004 |
[Exhibit-32.1-04]ll
86
EXHIBIT 32.2
Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Park
Electrochemical Corp.(the "Company") for the fiscal year
ended February 29, 2004 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), Murray
O. Stamer, as Senior Vice President and Chief Financial
Officer of the Company, hereby certifies, pursuant to 18
U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-
Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/Murray O. Stamer
Name: Murray O. Stamer
Title: Senior Vice President and
Chief Financial Officer
Date: May 12, 2004
|
[Exhibit-32.2-04]ll